Fed’s preferred inflation gauge rose to 4.4% in April

US main price indexes rose in April and consumer spending recovered, indicating that inflationary pressures in the economy remain high.

Prices rose 0.4% from March to April, according to the index, which the Fed closely monitors.

That was well above the 0.1% rise in the previous month.

Measured on a year-over-year basis, prices rose 4.4% in April from 4.2% in March.

The year-on-year rate of change is well below the 7% peak in June last year, but is still well above the Fed’s 2% target.

A report released by the government on Friday also showed that consumers remained in good spirits despite higher prices.

Their spending increased 0.8% from March to April, the biggest increase since January.

Most of the increase came from spending on new cars, which jumped 6.2%. Among other items, Americans bought more computers, gasoline, and clothing.

Despite years of predictions of a coming recession, Friday’s data highlighted the remarkable resilience of the US economy.

Private consumption, which drives most of the U.S. economy, is underpinned by robust job growth and wage growth.

Economic growth slowed to an annualized rate of 1.3% in January-March, but is expected to pick up to 2% in the April-June quarter.

Among other items, Americans bought more computers, gasoline, and clothing.

At the same time, persistently high inflation complicates the Federal Reserve’s interest rate decisions.

Fed Chairman Jerome Powell has suggested that the Fed, after raising interest rates 10 times in a row in 14 months, is likely to hold off at its mid-June meeting.

But a vocal group of the Fed’s 18-member rate-setting committee is arguing for another rate hike later this year, citing inflation not decelerating fast enough.

“Inflation is too relentless for the Fed to go on a long moratorium,” said Michael Gaipen, a U.S. economist at Bank of America Securities. “Even if the Fed skips June, it will continue to raise rates in July.”

By item, food prices fell 0.1% in April, marking the second straight year of decline.

By contrast, gas and other energy costs rose by 2.4%.

Fed officials are paying particular attention to a category of prices called core inflation. Core inflation excludes volatile energy and food costs and is considered a better measure of underlying inflation.

Core prices rose by 0.4% from March to April, the same as the previous month, and increased by 4.7% from 12 months ago.

The year-on-year rate of core inflation has changed little since it first reached 4.6% in December.

Second-hand cars on display
Used car prices rose 4.7% last month.

Some economists expect inflation to ease in the coming months.

Omail Sharif, founder of Inflation Insights, said several pricing quirks fueled the better-than-expected rise in core prices in April, which he said would probably not last.

Legal services, for example, surged 3.8% from March to April.

This was the steepest monthly rate of increase on record until 1959.

Used-car prices rose 4.7% last month, but Mr. Sharif said a declining indicator of wholesale used-car costs would help keep overall inflation in check by June.

“This is like the storm before the calm,” he said.

Another sign that the economy remains strong was revealed on Friday in another report.

it showed that A measure of a company’s investment in durable factory products It rose 1.4% in April. This is evidence that businesses continue to spend despite inflation and rising borrowing costs, given still-steady consumer demand.

The inflation measure released on Friday is called the Personal Consumption Expenditure Price Index, which is separate from the better-known government consumer price index.

Earlier this month, the government announced that the CPI in April rose 4.9% from 12 months ago.

The two indexes differ in several ways.

Rent accounts for twice as much weight in CPI as it does in PCE.

The PCE index also tries to explain changes in how people shop when inflation spikes, such as choosing cheaper store brands from expensive domestic brands.

As Fed officials raucously debated next steps, the latest inflation data was released.

Several policymakers have said they are in favor of further rate hikes in the coming months.

However, most Fed watchers expect the Fed to forgo another rate hike at its next meeting in mid-June.

Powell last week raised the benchmark interest rate to about 5.1%, the highest level in almost 16 years, giving Fed officials the leeway to wait and see how the hike would affect the economy. Stated.

It could take a year or more for a rate hike to significantly slow down the job market and the economy as a whole.

The Fed’s ultimate goal is to make borrowing more expensive for consumers and businesses, thereby limiting spending, growth, and inflation.

Rising interest rates have more than doubled mortgage rates, driving up the cost of auto, credit card and business loans.

The risk of a recession has also increased, with most economists expecting it to begin sometime this year.

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