The Fed’s preferred measure of inflation reached a new 40-year high

New York
CNN business

The Americans had to reach deeper into their pockets in March, when another key inflation index showed prices hit a new 40-year high.

The Personal Consumption Expenditure Price Index increased 6.6% for the year ending March, on Department of Commerce reported Friday. It was the highest rate since period ended January 1982surpassing the February figure.

Energy costs soared in the first quarter in the wake of the war in Ukraine, up 33.9% for the year ending March. Over the same period, food prices increased by 9.2%.

Excluding food and energy costs, the measure of PCE inflation increased by 5.2%, a slightly slower pace than the 5.3% recorded in February. This index is the Federal Reserve’s preferred measure of inflation, but the slight drop in the tick is unlikely to change the Fed’s monetary policy path.

The central bank began to raise interest rates last month to control high inflation and rates are expected to continue to rise all the year. At the highly anticipated policy meeting next week, the bank is expected to raise rates by one dollar half a percentage point.

Economists are hoping inflation peaked in the first quarter, but only the April data could show some relief.

Looking at March alone, prices rose 0.9%, more than in previous months, while core prices rose 0.3%, unchanged from February and in line with economists’ expectations.

Despite the increases in March, Americans felt a little better about the economy in April, the data of University of Michigan Consumer Sentiment Survey shown Friday.

One of the main reasons was the decline in gas cost expectations: after pump prices soared in March, they moderated again in April, bringing some relief to household budgets.

“Other positives for consumer spending in 2022 are the very strong job market and record household wealth, due to rising house values ​​and a still high stock market, even with recent price declines.” , said Gus Faucher, chief economist of the PNC. “However, rising interest rates this year will become more of a hindrance, especially for high-priced items.”

That said, Friday’s data must be taken with a grain of salt: with the exception of February and March, the sentiment index for April was even lower than at any point in the past decade.

“Consumers have lost faith in economic policies, with fiscal actions increasingly hampered by partisanship ahead of the congressional elections,” said Richard Curtin, chief economist at Surveys of Consumers. “Monetary policy now aims to temper the strong labor market and reduce wage gains, the only factors now supporting optimism.”

For the time being, the labor market remains strong and employers continue to raise wages to retain and attract workers. BEA data on Friday showed that US incomes rose, adding 0.5% or $ 107.2 billion. Disposable incomes also increased 0.5%, or $ 89.7 billion, while consumer spending increased 1.1%, or $ 185 billion, more than the previous month.

Americans saved less, however: The personal savings rate fell to 6.2%, the lowest level since 2013.

Labor cost data released by Bureau of Labor Statistics Friday morning showed compensation increased 1.4% in the three months ended March, net of seasonal swings, more than expected.

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