Inflation Unexpectedly Surges Higher, Putting Pressure on Fed To Keep Hiking

A gauge of consumer prices closely watched by the Federal Reserve showed inflation accelerating in April.

The personal consumption expenditure (PCE) price index rose 0.4 percent in April, up from the 0.1 percent rise a month earlier. Economists had forecast a milder increase to 0.3 percent.

Compared with April of last year, the PCE price index is up 4,4 percent, a faster annual pace of inflation than the 4.2 percent recorded in March.

Core PCE prices, a gauge that excludes the volatile categories of food and energy, also rose by 0.4 percent. Many economists look to core prices as a guide to underlying inflationary pressures. In March, core PCE prices were up 0.3 percent.

Compared with a year ago, core PCE inflation is up 4.7 percent, an acceleration from the 4.6 percent annual pace recorded in March. Core PCE prices have been up between 4.6 and 4.7 percent in each of the last five months, indicating that the Fed’s hikes have made no progress in bringing down the rate of inflation.

The Fed uses the PCE price index as the basis for its target of two percent annual inflation, which the central bank views as consistent with its mandate to sustain price stability.

The Federal Reserve has hiked interest rates ten times over the past year and has been shrinking the bond portfolio built up during its quantitative easing programs in the aftermath of the financial crisis and during the pandemic. Inflation has come down from its peak last summer but has been going sideways for several months.

Many Fed officials have indicated that they are closely watching incoming data to decide whether to implement another rate hike at the next meeting in June or to put hikes on pause, skipping a meeting or two to assess how earlier hikes are affecting the economy. The higher-than-expected PCE inflation figures released Friday could tip the scales in favor of hiking again at the next meeting.

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