Inflation rose 0.4% in April and 4.7% from a year ago, according to key gauge for the Fed

Inflation remained stubbornly high in April, possibly bolstering the prospect that interest rates may remain on hold for longer, according to a gauge released Friday that is closely followed by the Federal Reserve.

The price index for personal consumption expenditures, which measures a variety of goods and services and adjusts for changes in consumer behavior, excluding food and energy costs, rose 0.4 percent for the month, the Dow Jones The estimate is higher than 0.3 percent.

On an annual basis, the gauge rose 4.7 percent, 0.1 percentage point higher than expected. Commerce Department reported.

Excluding food and energy, headline PCE also rose 0.4 percent and rose 4.4 percent from a year ago, up from a 4.2 percent rate in March.

Despite the high rate of inflation, consumer spending increased and personal income increased.

The report showed that spending rose 0.8 percent during the month, while personal income rose 0.4 percent. Both numbers were expected to increase by 0.4 percent.

Price increases were almost evenly spread, with goods up 0.3% and services up 0.4%. Food prices rose less than 0.1 percent, while energy prices rose 0.7 percent. On an annual basis, goods prices rose 2.1 percent and services rose 5.5 percent, further indicating that the U.S. is shifting toward a service-oriented economy.

Food prices rose 6.9 percent from a year ago, while energy prices fell 6.3 percent. Both monthly PCE gains were the largest since January.

Markets reacted little to the news. Point to the future of the stock market As investors focused on improving the prospects for a Debt Limit Deal Treasury yields were mostly higher in Washington.

Feed implications

“With today’s warmer-than-expected PCE report, the Fed’s summer vacation may need to be scaled back as consumers fuel holiday spending,” noted George Matteo, chief investment officer at Key Private Bank. “Prior to today’s release, we believed the Fed might have been hoping to take a summer break (ie, pause and reassess), but now it looks like the Fed’s job of reducing inflation is far from over. It’s happened.”

The report comes just weeks ahead of the Fed’s June 13-14 policy meeting.

The Fed targets annual inflation at around 2%, meaning that current levels remain well above the target and leading to the possibility that the central bank’s aggressive actions over the past year or so will continue. They can persist.

One way to increase the Fed rate is to reduce demand. April spending data, however, showed that consumers continued to spend in the face of both higher rates and stronger inflation, meaning policymakers have a lot of catching up to do.

Immediately after the report, the market priced in a 56 percent chance that the Fed would raise interest rates by another quarter percentage point at its June meeting. According to CME Group. There are only two key inflation data points ahead, the May nonfarm payrolls report next Friday and the consumer price index on June 13.

Demand for durable goods unexpectedly rose 1.1 percent in April, along with an increase in consumer spending A separate report from the Commerce Department. Economists surveyed by Dow Jones were looking for a 0.8 percent decline. Excluding transportation, which rose 3.7%, new orders fell 0.2%.

Consumers had to dip into savings to keep up with spending, with the personal savings rate of 4.1% representing a 0.4 percentage point decline from March.

The data comes amid a high level of uncertainty about where the economy is headed from here. Expectations for a recession later this year are high, given rising interest rates, an expected credit crunch in the banking industry and consumer pressures on various fronts.

However, a report on Thursday showed the economy grew more strongly in the first quarter than initially reported, with real GDP growing at an annual pace of 1.3 percent, compared to the previous estimate of 1.1 percent.

Real gross household income, however, fell 2.3 percent in the quarter. GDI measures the total amount of money earned for goods and services and is usually linked to GDP. The average of the two measures shows a 0.5 percent decline in quarterly growth, according to the Commerce Department.

At the same time, the goods trade deficit widened 17 percent to $96.8 billion in April, according to Commerce’s Advanced Economic Indicators report released Friday. Exports are a net negative for GDP.

Still, Citigroup economists expect the Fed to raise its forecasts for inflation and GDP when it issues updates at its June meeting.

The minutes were released on Wednesday. The May Fed meeting showed policymakers divided over their next move, as members tried to balance higher-than-expected inflation against spillover effects from troubles in the banking industry.

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