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Inflation remained high in April, increasing the likelihood that interest rates will remain high for a long time, according to data released by the Federal Reserve on Friday.
The Personal Consumption Expenditure Price Index, which measures a range of goods and services and adjusts for changes in consumer behavior, rose 0.4% in the month, excluding food and energy costs, beating the Dow Jones forecast of 0.3%.
On an annual basis, the gauge increased by 4.7%, beating expectations by 0.1 points. Department of Commerce reported.
Composite PCE, which includes food and energy, also rose 0.4%, up 4.4% year-on-year, up from 4.2% in March.
Despite the rising inflation rate, personal consumption remained strong and personal income increased.
Expenditures rose 0.8% in the same month, while personal income rose 0.4%, the report said. Both forecasts were for a 0.4% increase.
Inflation was almost evenly spread, with goods rising 0.3% and services rising 0.4%. Food prices fell by less than 0.1%, while energy prices rose by 0.7%. On an annual basis, commodity prices rose 2.1% and services rose 5.5%, further demonstrating the US’s shift toward a services-oriented economy.
Food prices rose 6.9% year-on-year, while energy prices fell 6.3%. Both months PCE gains were the highest since January.
Markets did little to react to the news, with stock market futures rallying as investors focused on improving prospects for a debt ceiling deal in Washington. Yields on government bonds generally rose.
Impact on the Fed
“Today’s better-than-expected PCE report means the Fed’s summer vacation needs to be shortened as consumer vacations stimulate spending,” said George Mateyo, chief investment officer at Key Private Bank. maybe,” he pointed out. “Before today’s announcement, I suspect the Fed wanted to take a summer break (i.e. pause and reassess), but now the Fed’s job of keeping inflation under control is still done. Doesn’t seem like it,” he said.
The report was released just weeks before the Fed’s June 13-14 policy meeting.
The Fed has set an annual inflation target of about 2%, meaning that current levels are still well above target, and the central bank’s aggressive policy over the past year or so. is likely to remain the same.
One of the ways the Fed rate hikes might work is by dampening demand. But April’s spending data shows that consumers are continuing to spend despite rising interest rates and high inflation, meaning policymakers may still have more work to do. there is
Immediately after this report, market pricing shifted the chances of the Fed raising rates by another quarter percentage point at its June meeting to 56%. According to CME Group. Only two inflation-related data will be significant until then: May’s non-farm payrolls report next Friday and the consumer price index on June 13th.
Demand for durable goods also rose unexpectedly 1.1% in April, in line with the increase in consumer spending, according to the report. Another Department of Commerce report. Economists surveyed by Dow Jones had forecast a 0.8% decline. Excluding transportation, which rose 3.7%, new orders fell 0.2%.
Consumers need to tap into savings to sustain spending, with the personal savings rate at 4.1%, down 0.4 percentage points from March.
The data comes at a time of high uncertainty about where the economy will head in the future. Expectations of a recession later this year are rising given rising interest rates, an expected credit crunch in the banking industry and consumer pressures on many fronts.
However, Thursday’s report showed that the economy outperformed earlier reports in the first quarter, with real GDP growing at an annualized pace of 1.3% compared with previous forecasts of 1.1%.
However, real gross domestic income fell by 2.3% in the quarter. GDI measures all money earned from goods and services and usually varies in tandem with GDP. According to the Department of Commerce, averaging the two measures shows that quarterly growth will fall by 0.5%.
At the same time, the goods trade deficit jumped 17% to $96.8 billion in April, according to the Commerce Department’s Advanced Economic Indicators report released on Friday. Exports are a net negative for GDP.
Still, Citigroup economists expect the Fed to raise its outlook for inflation and GDP when it releases updates at its June meeting.
Minutes of the Fed’s May meeting, released Wednesday, showed policymakers split on their next course of action as members sought a balance between better-than-expected inflation and the spillover effects of problems in the banking industry. It was shown that
