Inflation rises moderately in April, consumer spending slows

Inflation rises moderately in April, consumer spending slows

By Lindsay Dunsmuir

(Reuters) – U.S. inflation stagnated in April, a worrying sign for the Federal Reserve that suggests the high pace of price increases could last longer than expected and casts doubt on how quickly the central bank will be able to measure to reduce interest rates.

Friday’s Commerce Department report also showed subdued consumer spending, a problem that could help the Fed fight inflation or cause some nervousness if the economy cools too quickly.

“The closer market inflation stays to 3%, the harder it is for the Fed to make the case for lower rates. There is certainly nothing in these numbers that advances the Fed’s idea on rate cuts,” said Josepth Trevisani, a senior Fed official. analyst at FXStreet.

The personal consumption expenditures (PCE) price index rose 0.3% last month, the Commerce Department’s Bureau of Economic Analysis said Friday, matching March’s unrevised gain.

In the 12 months to April, the PCE price index rose 2.7% after rising at the same pace in March. Economists polled by Reuters forecast an increase of 0.3% over the month and 2.7% over the year. The PCE price index is one of the inflation measures tracked by the US central bank for its 2% target. Monthly inflation figures of 0.2% over time are needed to bring inflation back to target.

Yields on U.S. Treasury securities fell following the report, while stock index futures rebounded, suggesting stocks would open higher after two straight days of losses on Wall Street. The dollar was weaker overall.

Traders in futures linked to the Fed’s policy rate maintained roughly even bets that the central bank would begin cutting rates in September.

The Fed has kept its benchmark rate in the range of 5.25% to 5.50% over the past 10 months and was hit by several stronger-than-expected inflation and labor market numbers between January and March, after more encouraging figures in the fourth quarter of 2017. last year.

However, earlier this month, monthly employment gains figures for April provided some relief, with job growth at its lowest level in six months. Additionally, other data has confirmed that consumers appear to be cutting back on spending.

Excluding the volatile food and energy components, the PCE price index rose 0.2% in April after rising 0.3% in March. Core inflation rose 2.8% year-on-year in April, matching March’s increase. PCE services inflation excluding energy and housing increased by 0.3% after a gain of 0.4% in March.

The Fed has increased borrowing costs by 525 basis points since March 2022 in an effort to dampen demand across the economy. Financial markets initially expected a first rate cut in March, which was then pushed back to June and now to September.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2%, down from a downwardly revised 0.7% increase in March. Revised gross domestic product data released on Thursday showed that consumer spending moderated to a pace of 2.0% in the first quarter, compared with a brisk pace of 3.3% for the October-December period.

(Reporting by Lindsay Dunsmuir; editing by Paul Simao and Chizu Nomiyama)

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