U.S. consumer prices increased by the most in 15 months in April, but gains in inflation are likely to be limited, as the Commerce Department’s report on Friday also showed a deceleration in consumer spending last month.

This appears to be the latest indication that economic growth was slowing after a temporary boost from exports, inventories, and defense spending in the first quarter.

These findings could support the Federal Reserve’s contention that recent low inflation readings were transitory and allow the central bank to keep interest rates unchanged for a while.

Fed Chairman Jerome Powell said during a May 1 press conference that “economic growth and job creation have both been a bit stronger than we anticipated, while inflation has been somewhat weaker.”

Powell added, that “the economy continues on a healthy path, and the committee believes that the current stance of policy is appropriate.”

Earlier this month the Fed kept rates unchanged and signaled little inclination to adjust monetary policy anytime soon.

After four interest rate hikes in 2018, Fed policymakers have held steady on rates so far this year amid concerns about weak economic data in the United States and abroad. They voted unanimously to stay on that course at their April meeting, leaving the federal funds rate in a range of 2.25% to 2.50%.

Financial consultant Kassandra T. Dasent attributes the fact that consumer spending is slowing down to two likely key reasons. “U.S. households are servicing a high consumer debt load, and they are also focused on increasing their personal savings rate,” she told CFO.

As a result, Desent contends that “consumers may have less disposable income available, even if they benefited from a marginal increase in income to prioritize purchases of durable goods, such as autos and home,” she said. “The Fed policy of leaving rates unchanged is a good strategy for the moment, unless we see a continued decrease in consumer spending and a marked increase in the consumer price index.”

The personal consumption expenditures (PCE) price index increased 0.3% last month, the biggest gain since January 2018, after rising 0.2% in March. That lifted the annual increase in the PCE price index to 1.5% from 1.4% in March.

Excluding the volatile food and energy components, the PCE price index gained 0.2% last month after edging up 0.1% in March. In the 12 months through April, the so-called core PCE price index increased 1.6% after rising 1.5% in March.

The core PCE index is the Fed’s preferred inflation measure. It hit the U.S. central bank’s 2% inflation target in March 2018 for the first time since April 2012.

A much weaker inflation pulse than initially thought in the first quarter had led economists to anticipate that the annual core PCE price index would remain at 1.5% in April.

The dollar pared losses against a basket of currencies following the release of the data, while U.S. Treasury prices were trading higher.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.3% as consumers cut back purchases of long-lasting manufactured goods such as motor vehicles. They also spent less on services, including household electricity and gas.

Data for March was revised up to show consumer spending jumping 1.1%, the biggest increase since August 2009, instead of the previously reported 0.9% rise.

When adjusted for inflation, consumer spending was unchanged in April. This so-called real consumer spending rose 0.9% in March.

The weak real consumer spending in April added to soft reports on industrial production, orders for long-lasting manufactured goods, and home sales in suggesting slower economic growth in the second quarter.

, , ,

One response to “U.S. Inflation Picks Up the Most in 15 Months”

  1. It will be interesting to track these figures as the tariffs start to hit the prices in the consumer economy. The very least effect may be delayed spending on big ticket items until the tariffs are removed. Unless they break, big ticket item replacements can usually be delayed by months.

Leave a Reply

Your email address will not be published. Required fields are marked *