Inflation rises unexpectedly, putting pressure on the Fed to keep climbing

A closely watched consumer price gauge by the Federal Reserve showed an acceleration in inflation in April.

The personal consumption expenditure (PCE) price index rose 0.4% in April, from 0.1% a month earlier. Economists had forecast a more moderate increase at 0.3%.

Compared to April last year, the PCE price index rose 4.4%, a faster pace of annual inflation than the 4.2% recorded in March.

Core PCE prices, a gauge that excludes the volatile food and energy categories, also rose 0.4%. Many economists regard underlying prices as a guide to underlying inflationary pressures. In March, core PCE prices rose 0.3%.

Compared to a year ago, core PCE inflation is up 4.7%, an acceleration from the 4.6% annual pace recorded in March. Core PCE prices have risen 4.6-4.7% in each of the past five months, indicating that Fed hikes have made no headway in bringing the rate of inflation down.

The Fed uses the PCE price index as the basis for its 2% annual inflation target, which the central bank considers consistent with its mandate to maintain price stability.

The Federal Reserve has raised interest rates ten times over the past year and reduced the bond portfolio built up during its quantitative easing programs in the aftermath of the financial crisis and during the pandemic. Inflation has come down since its peak last summer, but has stalled for several months.

Many Fed officials have indicated they are watching incoming data closely to decide whether to implement another rate hike at the next meeting in June or pause hikes, skipping a meeting or two for assess how previous hikes affect the economy. Higher-than-expected PCE inflation figures released on Friday could tip the scales in favor of further upside at the next meeting.


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