Justin Sullivan/Getty Images
Shoppers carry grocery bags as they walk through The Village at Corte Madera in Corte Madera, California, on May 30. Economists had expected U.S. consumer spending to grow slower in April than in March.
CNN
—
Inflation in April remained as high as it was in March, meaning costs for consumers continue to rise sharply and the Federal Reserve will need to do more to combat rising prices.
Commerce Department data released Friday showed the personal consumption expenditures price index — a closely watched inflation gauge used by the Fed to set its 2% inflation target — rose 0.3% from the previous month to a 2.7% annual rate, matching the increase in March.
Food prices fell this month, while gasoline prices rose 1.2%. Prices of goods and services rose 0.2% and 0.3%, respectively. On an annual basis, services inflation remained at 3.9%, while goods inflation was roughly stable at 0.1%.
Excluding volatile food and energy prices, the core PCE price index rose 0.2% from a 0.3% increase in March. On an annual basis, the core PCE price index remained steady at 2.8% for the third consecutive month.
“Inflation is stagnating,” Steven Ricciuto, chief economist at Mizuho Securities U.S., said in an interview with CNN. “The economy is on the decline, going from growth to slowing, but we still have an extremely tight labor market, so the shift from growth to recovery doesn’t provide any reassurance that inflation is going to come down anytime soon.”
Friday’s report was a fresh reminder that slowing inflation is a difficult process, but the result wasn’t entirely unexpected: Economists had generally expected no meaningful changes in the inflation readings.
The monthly and annual gains for the composite and core indexes are expected to be unchanged from March, according to FactSet consensus estimates.
“Core PCE inflation fell to 0.2% in April for the first time since late last year, but you might want to hold back on the applause as the triple-digit change was 0.249%, just a hundredth of a percent increase. [of a percentage point] “This measure can mean the difference between a strengthening or weakening core inflation outlook,” Chris Rupkey, chief economist at FwdBonds, wrote in a note Friday.
While the overall PCE price index is technically used as the Fed’s target rate, the core index gets more attention from Fed officials because it gives a clearer picture of how underlying inflation is moving.
Weak expenditures and income
The inflation rate remained the same, but Americans’ incomes and spending did not change.
Consumer spending also cooled this month, increasing just 0.2% compared to a 0.7% increase in March. Disposable income growth also slowed, increasing just 0.2% compared to a 0.5% increase in March.
Taking inflation into account, spending and disposable income both fell 0.1% for the month. The personal savings rate (savings as a percentage of disposable income) remained unchanged at 3.6%, the lowest level this year.
The PCE index is part of the Personal Income and Expenditure Report and provides one of the most comprehensive analyses of price changes, including how consumers react to price changes and how much they are spending, earning and saving.
Nationwide chief economist Kathy Bostjanic said Friday’s report was further evidence that economic activity slowed in April.
Retail sales flatlined earlier this month, and some of the nation’s largest retailers and restaurants showed signs that consumers were becoming less willing to buy.
This trend is set to continue, Boszjanic said.
“We expect growth in personal income and consumer spending to slow in the coming months as businesses cut back on net new hiring, weighing on overall income growth and as consumers curb spending,” she said in a commentary published on Friday.
Michael Pearce, deputy chief U.S. economist at Oxford Economics, said Friday that weak spending means further rate cuts are likely in 2024.
“The Fed will need a series of more favorable reports before it feels confident enough to cut rates,” he wrote. “Four more inflation reports are due between now and September. [Fed policymaking] We still think it’s likely the Fed will cut rates at its meeting.”
