May 31 2024: U.S. Inflation Increases as Expected in April, Suggesting Prolonged Price Pressures
U.S. inflation remained steady in April, raising concerns for the Federal Reserve about the continued elevated pace of price increases and casting doubt on the timeline for potential interest rate cuts.
The personal consumption expenditures (PCE) price index rose by 0.3% last month, according to the Commerce Department’s Bureau of Economic Analysis on Friday. This matched the unrevised gain from March.
Over the 12 months through April, the PCE price index increased by 2.7%, the same annual rate as in March. Economists surveyed by Reuters had predicted a 0.3% monthly increase and a 2.7% year-on-year rise. The PCE price index is one of the key inflation measures monitored by the Federal Reserve for its 2% target. Monthly inflation rates of 0.2% are necessary over time to bring inflation back to this target.
The Fed has maintained its benchmark policy rate in the 5.25%-5.50% range for the past 10 months, following stronger-than-expected inflation and labor market data from January to March, which contradicted more favorable readings in the fourth quarter of the previous year.
However, earlier this month, April’s job gains and consumer price index (CPI) readings, another important inflation measure, provided some relief for the Fed. U.S. job growth was at its lowest level in six months, and the CPI increase was below expectations.
Since March 2022, the Fed has raised borrowing costs by 525 basis points to cool demand across the economy. Financial markets initially anticipated the first rate cut in March, which was then postponed to June and now to September.
Consumer spending, accounting for over two-thirds of U.S. economic activity, increased by 0.2% in April, down from a 0.7% rise in March. Revised gross domestic product data released on Thursday showed consumer spending slowing to a 2.0% pace in the first quarter from a robust 3.3% pace in the October-December period.
