Americans Keep Spending Even as Inflation Erodes Buying Power

Economists and investors closely watch the report’s Personal Consumption Expenditures price index, an alternative to the better-known Consumer Price Index, because the Fed prefers it as a measure of inflation. The central bank has been raising interest rates and has announced it will begin paring its assets in a bid to cool the economy and tame inflation.

In a statement released by the White House on Friday, President Biden called the dip in inflation “a sign of progress, even as we have more work to do.”

The slowdown in inflation in April was largely the result of a drop in the price of gasoline and other energy. Gas prices soared in February and March largely because of Russia’s invasion of Ukraine, then moderated somewhat in April. They have risen again in recent weeks, however, which could push measures of inflation back up in May. Food prices have also been rising quickly in recent months, a pattern that continued in April.

When the volatile food and fuel categories are stripped out, consumer prices were up 4.9 percent in April from a year earlier. That core measure, which some economists view as a more reliable guide to the underlying rate of inflation, was up 0.3 percent from a month earlier, little changed from the rate of increase in March.

The comparatively tame increase in core prices in the data released Friday stood in contrast to the sharp acceleration in the equivalent measure in the Consumer Price Index report released by the Labor Department this month. The divergence was mostly the result of differences in the way the two measures count airline fares, however, and economists said the Fed was unlikely to take much comfort from the Commerce Department data.

“My suspicion is they will probably look through the slowdown,” said Omair Sharif, the founder of the research firm Inflation Insights. He noted that the core index had also slowed in the fall, only to pick up again at the end of the year, catching the Fed off guard.

Many forecasters believe that the headline inflation rate peaked in March and that April marked the beginning of a gradual cool-down. But the recent rebound in gas prices threatens to complicate that picture. And even if inflation continues to ebb, prices are still rising far more quickly than the Fed’s target of 2 percent over time.

Article source: https://www.nytimes.com/2022/05/27/business/economy/pce-inflation-april.html