The Federal Reserve’s preferred inflation gauge remained high, but some easing was seen in May. Data released Thursday showed that central banks are worried about each inflow price data point and are rapidly raising interest rates to address rising costs under control.
The price index for consumer spending, which the Federal Reserve has officially targeted when aiming for an average of 2% inflation over the long term, rose 6.3% over the year to May, in line with the rise in April. .. Over the past month, gas prices have risen, resulting in a 0.6% rise and a rapid rise.
However, after removing potentially fluctuating food and fuel prices, PCE readings have risen 4.7% over the past year, slightly down from previous readings of 4.9%. On a monthly basis, its core majors were up 0.3% compared to the previous month, almost in line with the previous few months. Central banks are closely watching their key monthly paces to understand where the underlying inflationary pressures are heading.
According to a Bloomberg survey, the rise in the annual and monthly core price indexes was slightly slower than economists expected.
There were some positive signs in the report, but they were far from definitive. Come, as various other data sources suggest that inflation remains painfully rapid for now. The May Consumer Price Index Inflation Report, previously released, shows that prices are accelerating to the fastest pace in 40 years due to different calculation methods.
The PCE inflation index tends to be less volatile than the CPI index. In a post-release report, Pantheon Macroeconomics Chief Economist Ian Shepherdson reported that core PCE numbers are much lower than current CPI due to lower rent and vehicle weights and different airfare measurements.
The Fed accelerated the pace of interest rate hikes at a meeting earlier this month after the consumer price index rose 8.6% in May.
Central banks are unlikely to receive a signal from Thursday’s inflation data that is dramatically different from previous inflation reports. Core PCE inflation indicators have eased faster than economists predicted on an annual basis, but they remain very high, and inflation figures, including gas and food, are paramount to consumer inflation expectations. Tends to be. The fact that overall inflation remains stubbornly high can be worrisome to policy makers.
Various gauges that measure inflation expectations track and rise in how consumers think price increases will change over time.
Inflation is a more permanent economic background when businesses and employees expect higher future prices and begin to change their behaviour, that is, when they negotiate higher wages and pass on costs more easily. I’m afraid that it could be a unique feature.
The central bank said it plans to raise interest rates quickly until interest rates are well above 3% and double current levels, and is discussing a 0.5 or 3/4 point increase in July. is showing.
Higher rates should help slow spending, as it costs money to borrow money, but it may also risk cooling the economy enough to cause a recession. This is especially true as supply problems continue. This suggests that the Fed may have to more resolutely curb demand in order to curb inflation.
Federal Reserve Chair Jerome H. Powell said Wednesday that the central bank’s efforts to slow consumer and corporate demand to cool inflation “are likely to be somewhat painful.”
