The inflation gauge preferred by the Federal Reserve, the PCE, went up 4.9% in April compared to the same time last year. This level is still elevated and indicated that price pressures might be easing a little, according to the Commerce Department’s Friday report.
The rise in the core personal consumption expenditures price index remained in line with expectations. It also reflected that the pace is slowing from March’s reported 5.2%. This number doesn’t include volatile food and energy prices, two factors that greatly contributed to inflation being near a 40-year peak.
The 0.3% rise on a monthly basis was in line with Dow Jones estimates and was the same as March’s. The said monthly gain was only held back by a drop in energy prices in April that has since gone back up.
PCE Increase a Sign of Price Hikes Slowing Down?
Headline PCE went up 6.3%, including food and energy, in April compared to 2021. This also was a slower pace compared to the 6.6% pace seen in the month prior. Although, the monthly change appeared to have a more marked pullback as it only increased 0.2% compared to the surge in March that went up by 0.9%.
As seen in the data, consumers continued to spend money but they had to tap into their savings to do so.
“Consumers remained undaunted by inflation last month, strongly increasing spending and changing their mix to more services such as at bars and restaurants, and travel and recreation as the weather warms,” Robert Frick, corporate economist at Navy Federal Credit Union, said. “The spending was fueled in part by higher wages, and also by Americans drawing more money out of savings, which is a giant stockpile of at least $2 trillion,” he added.
Apart from the inflation data, the BEA also released a report indicating that personal income increased 0.4% during the month. This is a 0.1 percentage point drop from March and a slight miss on the estimate, which was 0.5%. Although consumer spending held up, increasing by 0.9%, it was below March’s 1.4%, which was upwardly revised.
Income following taxes and other charges remained flat a month after falling 0.5% in March.
For the past few months, inflation remained to move at a pace that has not been seen since the early 80s. Supply struggling to keep up with demand caused prices to go higher, fed by unprecedented fiscal stimulus packages during the COVID-19 pandemic, global supply chains at a bottleneck, and the war in Ukraine has caused energy prices to skyrocket and led to many fearing food shortages.
Even though the lower level of inflation provided a bit of relief in the White House, gas is bound to become a factor once more when May numbers are released next month. Gas prices have soared again in May, going up by over 11% compared to a month ago and 51% compared to the same time last year, as per AAA.
President Joe Biden noted the report for April in a statement, saying it was “a sign of progress, even as we have more work to do.”
The Fed has responded to price pressures by implementing two interest rate hikes, totaling 75 basis points. It has also mentioned that a series of hikes will likely come until inflation moves closer to 2%, the central bank’s goal.
On Friday, reported PCE numbers are below the consumer price index that the Bureau of Labor Statistics used. Headline CPI for April went up by 8.3% from last year.
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