Inflation continues to hit consumers’ wallets in April, according to the latest price data released Thursday, and the Federal Reserve is likely to remain on the sidelines until the current wave subsides.
The Commerce Department reported that the personal consumption expenditure price index rose a seasonally adjusted 0.4% in the month, bringing the 12-month inflation rate to 3.8%. Economists surveyed by Dow Jones had called for readings of 0.5% and 3.8%, respectively.
Core prices excluding food and energy rose 0.2% last month and 3.3% for the year, compared to expectations of 0.3% and 3.3%.
The 12-month level of headline inflation was the highest since May 2023. The annual level of core inflation was the highest since November 2023.
While the annual rate was in line with expectations, the softer monthly numbers may offer some hope that last month’s price spike is starting to ease.
Although the Fed utilizes a wide range of indicators, it uses the PCE indicator as its primary forecasting and policy tool. Officials generally believe that core is a better indicator of long-term inflation trends because it excludes volatile gas and food components.
In other economic news Thursday, first-quarter gross domestic product (GDP) growth was lower than expected. According to revised figures from the Commerce Department, GDP accelerated by just 1.6% on an annualized basis over the same period, which was lower than the 2% originally expected.
The ministry said the original figure had been lowered due to downward revisions in private consumption and investment. The consensus was that GDP would remain at 2%, as originally expected.
The Labor Department also said new jobless claims for the week ending May 23 rose to a seasonally adjusted 215,000, an increase of 5,000 from the previous quarter and slightly higher than the expected 213,000. Finally, orders for long-term “durable goods” such as aircraft, home appliances and computers rose 7.9% in April, well above expectations of 3.5%. However, new orders excluding transportation increased by 1.1%.
Despite the weak first-quarter GDP result, the ministry reported that personal consumption spending rose 0.5% in April, meeting expectations. However, revenue remained flat, contrary to expectations for a 0.4% increase. Furthermore, much of the consumption boom appears to be due to a decline in the personal savings rate, which has fallen to 2.6%, the lowest level since June 2022.
stock market futures After the data, the price remained negative, but it has broken out from the lows. Government bond yields, mainly long-term interest rates, were slightly negative.
On the inflation front, commodity prices rose 0.7% in April, pushed again by a 5.5% rise in gasoline prices. Service prices increased by 0.3%, including a 0.6% increase in the housing and utilities sector and a 0.5% increase in food services and accommodation.
Home prices generally rose 0.5%, the biggest monthly increase dating back to at least January 2025. Services excluding food, energy and housing rose only 0.2% in the same month.
While the inflation data will not change market expectations, it could provide some encouragement that underlying pressures are easing slightly.
Traders expect the Fed to keep interest rates on hold until at least the second half of 2026, and are now pricing in the possibility that the Fed’s next action will be to raise rates, possibly early next year.
Inflation was approaching the central bank’s 2% target, but the Iran war and tariffs threw the Fed’s policy into gear. Policymakers have recently placed more emphasis on the risk of inflation, amid growing signs that the labor market is stabilizing.
New Federal Reserve Chairman Kevin Warsh has indicated he believes the Fed’s benchmark interest rate could be lowered, but he is likely to face opposition from the remaining members of the Federal Open Market Committee.
