US inflation rises in line with expectations in April
The elevated pace of price increases could last longer than expected
US INFLATION tracked sideways in April, a worrying sign for the US central bank that suggests the elevated pace of price increases could last longer than expected and casts doubt on how soon it will be able to cut interest rates.
The personal consumption expenditures (PCE) price index increased 0.3 per cent last month, the Commerce Department’s Bureau of Economic Analysis said on Friday (May 31), matching the unrevised gain in March.
In the 12 months through April, the PCE price index rose 2.7 per cent after advancing 2.7 per cent in March. Economists polled by Reuters had forecast it would climb 0.3 per cent on the month and 2.7 per cent on a year-on-year basis. The PCE price index is one of the inflation measures tracked by the US central bank for its 2 per cent target. Monthly inflation readings of 0.2 per cent over time are needed to bring inflation back to target.
The Fed has kept its benchmark policy rate in the 5.25 per cent-5.50 per cent range for the past 10 months and was stung by three months of stronger-than-expected inflation and labour market readings from January to March after more encouraging readings in the fourth quarter of last year.
Earlier this month, however, readings for monthly April job gains and the consumer price index, another closely-watched inflation gauge, appeared to provide some relief for the Fed. US job growth was at the lowest level in six months, and the CPI increased less than expected.
The Fed has raised borrowing costs by 525 basis points since March 2022 in a bid to cool demand across the economy. Financial markets initially expected the first rate cut to come in March, which then got pushed back to June and now to September.
Consumer spending, which accounts for more than two-thirds of US economic activity, increased by 0.2 per cent, down from a 0.7 per cent rise in March. Revised gross domestic product data released on Thursday showed consumer spending moderating to a 2.0 per cent pace in the first quarter from the brisk 3.3 per cent pace in the October-December period. REUTERS
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