Inflation rose 0.4% in April and 4.7% from a year ago, key Fed gauge shows

Inflation remained stubbornly high in April, potentially bolstering the odds that interest rates will stay higher for longer, according to an indicator released Friday that the Federal Reserve is watching closely.

The personal consumption expenditure price index, which measures a variety of goods and services and adjusts for changes in consumer behavior, rose 0.4% for the month excluding food and energy costs, above l 0.3% Dow Jones estimate.

On a yearly basis, the gauge rose 4.7%, or 0.1 percentage points more than expected, the Commerce Department reported.

Including food and energy, overall PCE also rose 0.4% and rose 4.4% from a year ago, higher than the 4.2% rate in March.

Despite the higher inflation rate, consumer spending held up well while personal income rose.

The report showed spending jumped 0.8% for the month, while personal income accelerated 0.4%. Both figures were expected to increase by 0.4%.

Price increases were almost evenly distributed, with goods rising 0.3% and services 0.4%. Food prices fell less than 0.1% while energy prices rose 0.7%. On an annual basis, prices for goods increased by 2.1% and services by 5.5%, further indication that the United States was returning to a service-oriented economy.

Food prices rose 6.9% from a year ago, while energy fell 6.3%.

The report comes a few weeks before the Fed’s June 13-14 policy meeting.

The Fed is targeting annual inflation of around 2%, which means that current levels remain well above target and the aggressive actions taken by the central bank over the past year could remain intact.

One of the ways Fed rate hikes are supposed to work is to depress demand. However, April’s spending figures show consumers continued to spend in the face of both higher rates and high inflation, meaning policymakers may have more to do.

Immediately after the report, market prices rose to a 57% chance that the Fed would enact another quarter-percentage-point interest rate hike at the June meeting. There are only two key data points until then, with the May nonfarm payrolls report due next Friday and the consumer price index on June 13.

This is breaking news. Please check back here for updates.


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