U.S. prices cooled in April, key inflation gauge shows

A price gauge closely monitored by the Federal Reserve cooled slightly last month, a sign that inflation may be easing after rising in the first three months of this year.

Friday report from the Commerce Department showed that an index that excludes volatile food and energy costs rose 0.2% from March to April, down from 0.3% the previous month. It was the mildest increase so far this year.

“The core PCE inflation gauge cooled in April, a welcome result after warming in the first quarter,” Kathy Bostjanic, chief national economist, said in a note. “That said, Fed policymakers will need more than one month of better inflation readings to bolster their confidence enough to start cutting rates later this year,” she said.

Measured against the previous 12 months, so-called “base” prices rose 2.8% in April, the same as in March. Global inflation increased 0.3% from March to April, the same as in the previous month, and 2 .7% year-on-year, also unchanged from the March figure.

The Fed tends to favor the inflation gauge the government released on Friday — the personal consumption expenditures price index — over the better-known consumer price index. The PCE index tries to take into account changes in the way people shop when inflation rises. It can capture, for example, when consumers switch from more expensive national brands to cheaper private labels.

Friday’s report also showed that income growth slowed and spending cooled sharply in April, a trend that could help moderate economic growth and inflation in the coming months and potentially please the Fed. Its policymakers said that They would have to see at least several reports of subdued inflation before they would feel comfortable cutting their benchmark interest rate.

Fed Chairman Jerome Powell said he expects inflation to continue to decline this year, but needs to gain “greater confidence” in that forecast from upcoming inflation reports.

Food prices declined last month, according to Friday’s report, although they were still up significantly from before the pandemic. Thus, long-lived goods prices, led by cheaper new and used cars, furniture and appliances. The cost of used cars fell nearly 5% last year.

Gas prices, however, jumped 2.7%, just from March to April. Likewise, the costs of many services have risen faster than the Fed would like. Restaurant meals, for example, increased 0.3% from March to April and were up 4% from the previous year. Entertainment prices, including movies and shows, rose 7.4% compared to the previous 12 months.

Inflation fell sharply in the second half of last year but then stabilized above the Fed’s 2% target in the early months of 2024. With polls showing that higher rents, groceries and gasoline are angering voters as As the presidential campaign intensifies, Donald Trump and his Republican allies sought to blame President Joe Biden.

“An important issue for the Fed that was raised within the [Federal Open Market Committee] as well as among former Fed officials is whether the focus on achieving 2% is appropriate and whether 2.5-3% is a more realistic target,” Quincy Krosby, chief global strategist at LPL Financial, said in a note.

“Still, the market is predicting a rate cut later in the year, and given the Fed’s latest comments, most Fed speakers are in agreement. The broader issue is now sacrosanct at 2%,” she said.

“The main concern is whether current policy punishes those who can least afford to pay higher interest rates, along with even higher prices.”

In recent weeks, a series of comments from Fed officials have underscored their intention to keep borrowing costs high as long as necessary to fully defeat inflation. As recently as March, Fed policymakers collectively predicted three rate cuts this year, starting in June. However, Wall Street investors now expect only one rate cut this year, in November.

An influential Fed official, John Williams, president of the Federal Reserve Bank of New York, said Thursday that he expects inflation to start cooling again in the second half of the year. Until that happens, however, Fed Chairman Jerome Powell has made clear that the central bank is prepared to keep its key rate pegged at 5.3%, its highest level in 23 years.

The central bank raised its benchmark rate from near zero to its current 15-month high, the fastest such increase in four decades, to try to tame inflation. The result has been significantly higher rates for mortgages, auto loans and other forms of consumer and business lending.