The Federal Reserve’s main price index rose to its highest level since 2023, confirming the central bank’s recent tough stance on inflation.
The personal consumption expenditure price index, which excludes food and energy, rose 0.3% month-over-month to an annualized rate of 3.4%, both in line with the Dow Jones Consensus. The core value reached its highest level since October 2023.
The Commerce Department’s report on Thursday showed that inflation for all components of the PCE index was running at a seasonally adjusted annual rate of 4.1%, the highest level since April 2023. On a monthly basis, PCE rose 0.4%. The annual level was in line with the Dow Jones consensus estimate, but the monthly reading was less than 0.1 percentage point.
Fed officials keep an eye on both the headline rate and the core rate, but generally believe the latter is a better measure of long-term trends, especially given that higher energy prices related to the Iran war, largely due to this year’s spike in inflation, have slowly trickled down to other parts of the economy.
Despite rising inflation levels, consumer spending was stronger than expected in the month.
Personal consumption expenditure, a measure of spending, rose 0.7% in the month, beating expectations by 0.1 percentage point and outpacing the inflation rate. Personal income also increased by 0.7%, much higher than the expected 0.4%. The personal savings rate rose to 3%.
The report comes a little more than a week after the Fed and its new chairman, Kevin Warsh, released what the market broadly sees on interest rates and inflation.
Mr. Warsh particularly emphasized the importance of price stability, and the Federal Open Market Committee adopted language in its post-meeting statement that explicitly stated it would “achieve price stability” after failing to meet its 2% inflation target for five consecutive years. Officials also reversed previously suggested interest rate cuts this year and signaled the possibility of rate hikes.
However, the inflation situation is complex. Fed officials have generally focused on supply-driven price increases caused by the energy surge, but there are growing concerns that price increases are more widespread and driven by tariffs.
The statement included “forward-looking guidance” for further rate cuts in the future, and several Fed officials objected to it at their April meeting after that language was removed from last week’s statement.
Other indicators released Thursday show the economy is in relatively strong shape.
Gross domestic product (GDP), the broadest measure of growth, grew at a seasonally adjusted annual rate of 2.1% in the first quarter, the last of three readings showed. This was up from the prior estimate of 1.6% and exceeded the forecast of 1.7%. The Commerce Department said the change primarily reflects a downward revision of imports deducted from gross domestic product (GDP).
The number of new unemployment insurance claims for the week ending June 20 was 215,000, down 12,000 from the previous report and higher than the expected 223,000.
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