The Fed’s favorite inflation measure hits a new 40-year high

The cost of energy rose sharply in the first quarter amid the war in Ukraine, up 33.9% in the year ended March. Food prices rose 9.2% over the same period.

Excluding food and energy costs, PCE inflation rose by 5.2%, slightly slower than the 5.3% recorded in February. This index is the Federal Reserve’s preferred measure of inflation, but a slight decline is unlikely to change the course of Federal Reserve policy.

The central bank began raising interest rates last month to cope with high inflation and is expected to continue raising rates. whole year. At a highly anticipated policy meeting next week, the bank is expected to raise rates by half a percentage point.

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

In 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.

Americans are slightly more optimistic

Despite price spikes in March, Americans felt slightly better in the economy in April, data show University of Michigan Consumer Sentiment Survey showed Friday.

To a large extent, the reason was lower expectations for gas prices: after gas station prices rose sharply in March, they fell again in April, which brought some relief to family budgets.

“Other positive drivers for consumer spending in 2022 are a very strong labor market and record high household wealth due to rising housing costs and a still strong stock market, even with recent price declines,” said PNC chief economist Gus Focher. “However, rising interest rates this year will be a big hurdle, especially for high-value goods.”

However, Friday’s data should be taken with a pinch of salt: with the exception of February and March, the sentiment index for April was still lower than at any time in the past decade.

“Consumers have lost confidence in economic policy, and fiscal action is increasingly stifled by partisanship ahead of congressional elections,” said Richard Curtin, chief economist at Surveys of Consumers. “Monetary policy is now focused on curbing a strong labor market and lowering wage growth, the only factors currently supporting optimism.”

For now, the labor market remains strong and employers continue to raise wages to keep and attract workers. Friday’s BEA data showed Americans’ income rose 0.5% or $107.2 billion. Disposable income also rose 0.5%, or $89.7 billion, while consumer spending increased 1.1%, or $185 billion, more than the previous month.

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

Labor cost data published Bureau of Labor Statistics Friday morning showed compensation rose 1.4% in the three months ended March, seasonally adjusted, more than expected.

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