Inflation continued to hit consumers’ wallets in April, likely keeping the Federal Reserve on the sidelines until the current wave subsides, new price data released Thursday showed.
THE personal consumption expenditure price index rose a seasonally adjusted 0.4% for the month, bringing the 12-month inflation rate to 3.8%, the Commerce Department reported. Economists surveyed by Dow Jones expected figures of 0.5% and 3.8% respectively.
Excluding food and energy, underlying prices rose 0.2% over the month and 3.3% over the year, compared to estimates of 0.3% and 3.3%.
The 12-month level of headline inflation was the highest since May 2023. For core inflation, the annual level was the highest since November 2023.
Even if annual rates were in line with forecasts, the weak monthly figures could raise hopes that the previous month’s price surge had begun to ease.
The Fed uses a broad dashboard of indicators, but uses PCE measures as its primary forecasting and policy tool. Officials generally view core inflation as a better indicator of long-term inflation trends because it excludes the volatile components of gas and groceries.
Furthermore, on Thursday, growth in gross domestic product in the first quarter was lower than expected. GDP accelerated at an annualized rate of just 1.6% over the period, according to a revised Commerce Department figure, lower than the initial estimate of 2%.
The department said the initial figure was reduced due to downward revisions to consumer spending and investment. The consensus was that GDP would hold at the previous estimate of 2%.
Also, initial unemployment claims for the week ended May 23, the seasonally adjusted figure stood at 215,000, up 5,000 from the previous period and slightly above the 213,000 expected, according to the Labor Department. Finally, sustainable orders “durable” goods such as airplanes, appliances and computers, climbed 7.9% in April, well above the 3.5% estimate. However, excluding transportation, new orders increased by 1.1%.
Despite weak first-quarter GDP figures, the department said consumer spending rose 0.5 percent in April, meeting forecasts. Revenues, however, remained stable, compared to the estimate of a 0.4% increase. Additionally, much of the spending boom appears to come from a decline in the personal savings rate, which fell to 2.6%, its lowest level since June 2022.
Stock futures markets remained negative after the data was released, but were off their lows. Treasury yields were slightly negative, mainly on longer duration bonds.
On the inflation front, prices of goods jumped 0.7% in April, driven again by gasoline, which jumped 5.5%. Prices for services rose 0.3%, which included a 0.6% acceleration in the housing and utilities category and a 0.5% increase in food and accommodation services.
House prices increased by 0.5% overall, with the largest monthly increase dating back to at least January 2025. Services excluding food, energy and housing increased by only 0.2% in the month.
The inflation figures could prompt a slight easing of underlying pressures, although they are unlikely to change market expectations.
Traders expect the Fed to remain on hold until at least the end of 2026 and are currently assessing the likelihood that the central bank’s next move will be a rate increase, perhaps early next year.
Inflation was nearing the central bank’s 2% target, but the war in Iran and the impact of tariffs derailed the Fed. Policymakers have recently placed greater emphasis on inflationary risk amid growing signs of labor market stabilization.
New Fed Chairman Kevin Warsh indicated he believed the central bank’s benchmark rate could be lowered, although it was likely to face opposition from the rest of the Federal Open Market Committee.