The Fed's preferred measure of inflation rose in April, increasing the likelihood of a rate hike at its next meeting.
The U.S. Commerce Department reported on May 26 that the personal consumption expenditures (PCE) price index rose 4.4 percent in April from a year earlier. That was up from 4.2 percent the previous month. Energy, goods and services prices drove the PCE increase, while food prices fell slightly.
Core PCE, which strips out volatile food and energy prices, also unexpectedly accelerated to 4.7%. Core PCE rose 4.6% in March. Economists had expected core PCE to remain flat, according to data firm Refinitiv.
The PCE is the Federal Reserve's preferred inflation gauge. The rise in the PCE is a sign of Fed Chairman Jerome Powell's warning that the fight against price increases "will be tough." Yesterday's data also increases the likelihood of a Fed rate hike at its upcoming meeting.
People wearing face masks at a supermarket in New Jersey. Photo: Reuters
The PCE is included in the personal income and expense report, which provides an overview of price changes and how people react to them, as well as how they spend, earn, and save.
Consumer spending rose 0.8% in April from March, double economists' forecasts. However, household income rose just 0.4%.
Inflation has peaked and plateaued, but it's still too high. Housing costs have flattened, but health care costs are rising, suggesting that the health care market remains tight and wages are rising fast. "It's important for inflation to cool further, otherwise the Fed will continue to raise rates, which could weaken the economy further and push it into recession," Mark Zandi, an economist at Moody's Analytics, told CNN.
The Fed has raised its benchmark interest rate 10 times since March to curb inflation. At its meeting earlier this month, Fed officials signaled that they may pause the rate hikes in June to assess the overall impact of the tightening process. In addition, US banks are tightening lending as volatility in the sector increases.
Before the PCE index was released, the market predicted a 54% chance of the Fed stopping its June rate hike. However, just an hour later, the situation changed to a 58% chance of the Fed raising rates by another 25 basis points (0.25%) next month.
Ha Thu (according to CNN)
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