Inflation stayed stubbornly high in April, according to a gauge released Friday by the Federal Reserve. The personal consumption expenditures price index, which measures a variety of goods and services and adjusts for changes in consumer behavior, rose 0.4% for the month, excluding food and energy costs, higher than the 0.3% Dow Jones estimate. On an annual basis, the gauge increased 4.7%, 0.1 percentage points higher than expected. Consumer spending held up well as personal income increased. Price increases spread almost evenly, with goods rising 0.3% and services up 0.4%. Food prices fell less than 0.1%, while energy prices increased 0.7%. Both monthly PCE gains were the most since January.
Market Reaction to Inflation
Markets reacted little to the news, with stock market futures pointing higher as investors focused on improving prospects for a debt ceiling deal in Washington. Treasury yields were mostly higher. The April spending numbers showed that consumers have continued spending in the face of both higher rates and strong inflation, meaning policymakers may have more to do.
Market pricing swung to a 56% chance that the Fed will enact another quarter percentage point interest rate hike at the June meeting, according to the CME Group. There are only two key inflation-related data points before then, with the May nonfarm payrolls report due next Friday and the consumer price index out June 13. Consumers had to dip into savings to keep up their spending, with the personal savings rate of 4.1% representing a 0.4 percentage point drop from March. Expectations for a recession later this year are high, considering rising interest rates, an expected credit crunch in the banking industry and consumer pressure on a variety of fronts. However, a report Thursday showed the economy grew more in the first quarter than initially reported, with real GDP rising at a 1.3% annualized pace compared with the previous estimate of 1.1%.
Source: CNBC.com
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