WASHINGTON: The US Federal Reserve’s preferred measure of inflation remained soft in April, despite a modest increase, as a key component saw its slowest rise in 16 months, the Commerce Department reported Tuesday.
The fresh sign of tepid price increases could lessen pressures on the central bank to raise interest rates when policymakers meet next month.
The Fed has signaled it likely will raise rates again “soon,” believing recent slow growth was only temporary and most analysts expect a rate hike at the next policy meeting on June 13-14.
The Personal Consumption Expenditures (PCE) price index, which tracks the cost of goods and services purchased by individuals, rose 0.2 percent last month compared to March, when it fell 0.2 percent, the first drop in 16 years.
Excluding the more volatile food and fuel categories, the “core” PCE price index also rose 0.2 percent. But the closely watched annual measure retreated from the Fed’s 2 percent target. The 12-month PCE slowed to 1.7 percent, down two-tenths from March, marking the second consecutive decrease.
The 12-month core PCE price index also slowed for the second time in a row to 1.5 percent, down from 1.6 percent in March and the smallest increase since December 2015.
Jim O'Sullivan of High Frequency Economics (HFE) said core inflation was held down in March and April in large part due to a single factor: Falling mobile phone prices.
“We expect the trend to start edging up again soon,” he wrote in a client note.
Personal income rose by 0.4 percent, or $58.4 billion in April, amid higher wages and salaries, while spending increased by the same amount, rising $53.2 billion.
Ian Shepherdson of Pantheon Macroeconomics said a sharp upward revision in February consumption growth to 0.5 percent pointed to a rebound in the second quarter of 2017. Weak consumption had held down first-quarter growth estimates.
Key US inflation measure up in April but remains soft
Key US inflation measure up in April but remains soft
