The Fed’s favorite inflation measure rose 4.

9% in April
in a sign that price increases could be slowing
cnbc.com/2022/05/27/the-feds-preferred-gauge-shows-inflation-rose-4point9percent-in-april-in-a-sign-that-price-
increases-could-be-slowing.html

May 27, 2022

Key Points

The core personal consumption expenditures price index, the

Fed’s preferred inflation gauge, rose 4.9% from a year ago in
April, in line with estimates and a deceleration from March.
Personal income rose slightly less than expected, but spending
beat estimates as consumers tapped savings.
Headline PCE rose just 0.2%, a sharp reduction from March’s
0.9% increase.

Key inflation gauge up 4.9% over past year, in line with expectations

The Federal Reserve’s preferred inflation gauge rose 4.9% in April

from a year ago, a still-elevated level that nonetheless indicated that
price pressures could be easing a bit, the Commerce Department
reported Friday.

That increase in the core personal consumption expenditures price

index was in line with expectations and reflected a slowing pace from
the 5.2% reported in March. The number excludes volatile food and
energy prices that have been a major contributor to inflation running
around a 40-year peak.

The 0.3% increase on a monthly basis was the same as March and in
line with Dow Jones estimates. The monthly gain was held back by a
decline in energy prices during April that has since reversed.

Including food and energy, headline PCE increased 6.3% in April

from a year ago. That also was a deceleration from the 6.6% pace in
the previous month. However, the monthly change showed a more

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marked pullback, with an increase of just 0.2% compared with the
0.9% surge in March.

People shop in a supermarket in Washington, DC, on May 26, 2022,

as Americans brace for summer sticker shock as inflation continues
to grow.

The data showed that consumers continued to spend but were

tapping 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,” said Robert Frick, corporate economist at Navy Federal
Credit Union. “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.”

Along with the inflation data, the BEA reported that personal income
rose 0.4% during the month, a 0.1 percentage point decline from
March and a slight miss on the 0.5% estimate. Consumer spending,
however, held up, rising a better-than-expected 0.9%, though that
was below March’s upwardly revised 1.4%.

Income after taxes and other charges was flat for the month after
falling 0.5% in March.

Inflation for the past several months has been moving at a pace not
seen since the early 1980s. The inability of supply to keep up with
demand has pushed prices higher, fed by unprecedented fiscal
stimulus during the Covid pandemic, clogged global supply chains
and the war in Ukraine that has sent energy prices soaring and led to
fears of food shortages.

While the lower level of inflation generated some relief in the White
House, gas will be a factor again when the May numbers come out
next month. Prices at the pump have jumped again in May, surging

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more than 11% from a month ago and 51% from this time last year,
according to AAA.

In a statement, President Joe Biden noted April’s report was “a sign

of progress, even as we have more work to do.”

Responding to the price pressures, the Fed has implemented two

interest rate increases totaling 75 basis points and has indicated that
a series of hikes are likely ahead until inflation comes closer to the
central bank’s 2% goal.

The PCE numbers reported Friday are lower than the consumer price
index used by the Bureau of Labor Statistics. Headline CPI for April
rose 8.3% from last year.

The two numbers differ in that the CPI tracks data from consumers
while PCE is extracted from businesses. The Fed considers PCE a
broader-based measure of what is happening with prices on a variety
of levels.

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