The Fed’s Preferred Inflation Gauge Moderated Slightly in May.


The Federal Reserve’s preferred inflation gauge remained high but showed glimmers of moderation in May, data released Thursday showed, at a moment when central bankers are watching each incoming price data point worriedly and are rapidly raising interest rates to wrestle cost increases under control.

The Personal Consumption Expenditures price measure, which the Fed officially targets when it aims for 2 percent inflation on average over time, climbed by 6.3 percent in the year through May, matching the April increase. Over the past month, it picked up 0.6 percent, a rapid pace of increase as gas prices rose.

But after stripping out food and fuel prices, which can be volatile, the P.C.E. measure climbed by 4.7 percent over the past year, down slightly from 4.9 percent in the prior reading. On a monthly basis, that core measure picked up by 0.3 percent compared with the prior month, roughly matching the previous few months. Central bankers are closely watching that core monthly pace to try to get a handle on where underlying inflation pressures are headed.

Both the annual and monthly core price index increases were slightly slower than economists in a Bloomberg survey had expected.

While there were some positive signs in the report, they were far from conclusive, and come as a variety of other data sources have suggested that, for now, inflation remains painfully rapid. The Consumer Price Index inflation report for May, which comes out earlier and is calculated differently, showed prices reaccelerating to the fastest pace in four decades.

The P.C.E. inflation index tends to be less volatile than the C.P.I. measure. The core P.C.E. number is much lower than the C.P.I. right now because it gives a lower weight to rents and vehicles and because it measures airline fares differently, Ian Shepherdson, the chief economist at Pantheon Macroeconomics, wrote in a report following the release.

The Fed picked up the pace of its interest rate increases at its meeting earlier this month, after the C.P.I. measure of inflation rose by 8.6 percent in May.

The central bank is unlikely to take a dramatically different signal from Thursday’s inflation data than from earlier inflation reports. While the core P.C.E. inflation measure is moderating more quickly than economists had forecast on an annual basis, it remains very high, and the inflation figures that includes gas and food are the ones that tend to matter most for consumers’ inflation expectations — so the reality that overall inflation remains stubbornly high is likely to worry policymakers.

A variety of gauges that measure inflation expectations, which track how consumers think price increases will change over time, have been climbing higher.

The Fed fears that if businesses and employees begin to expect higher future prices and change their behavior — negotiating higher wages and passing along cost increases more readily — inflation might become a more permanent feature of the economy backdrop.

Central bankers have signaled that they plan to quickly raise interest rates until they are well above 3 percent, double their current level, and are debating between a half-point or three-quarter point increase in July.

Higher rates should help to slow down spending as money becomes more expensive to borrow, but they could also risk cooling the economy so much that it tips into a recession. That’s especially true as supply issues persist, suggesting that the Fed may have to choke off demand more decisively to drive price increases lower.

Jerome H. Powell, the Fed chair, said on Wednesday that the central bank’s efforts to slow down consumer and business demand to cool off inflation were “highly likely to involve some pain.”



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