US consumer prices edged up in April but remained well below the Federal Reserve’s inflation target, while consumer spending cooled, data on Friday showed.
The personal consumption expenditures price index rose 1.5 per cent, the Commerce Department said. Meanwhile core PCE, the Federal Reserve’s preferred inflation gauge, rose 0.2 per cent month-on-month and were up 1.6 per cent from a year ago, in line with expectations. However, that still sits comfortably below the central bank’s 2 per cent target.
Sluggish inflation has been one of the reasons the Federal Reserve performed a U-turn on monetary policy earlier this year and chair Jay Powell attributed the softness to transitory factors.
This week Richard Clarida, the Fed’s vice-chairman, said if incoming data were to show a persistent shortfall in inflation or if the outlook were to take a turn for the worse the central bank could cut rates.
Investors have increased bets the Federal Reserve will cut US interest rates not once but twice this year, to counter concerns about slowing global economic growth.
Jim O’Sullivan at High Frequency Economics said that even though inflation is below the Fed’s 2 per cent goal, he did not believe that alone would trigger Fed rate cuts.
“The more plausible scenario for Fed easing is further escalation of trade tensions undermining confidence among business leaders as well as on Wall Street,” he said. “The risk of that scenario has risen with the president’s plan to start raising tariffs on goods from Mexico. Risks related to China alone were already elevated.”
Data on Friday also showed personal incomes grew by the most this year in April, up 0.5 per cent. That topped expectations for a 0.3 per cent increase and was the largest monthly rise since December.
However, purchases rose 0.3 per cent down sharply from the 1.1 per cent rise notched in March. Consumer spending accounts for the lion’s share of the US economy and a rough quarter for retailers has raised concerns about the strength in the American consumer.
“April spending was hit by the drop in auto sales previously reported in the retail sales numbers, and the warmer-than usual weather, which pushed down spending on utility energy services,” said Ian Shepherdson, economist at Pantheon Macroeconomics.
“Looking ahead, we reckon second quarter real consumption is on track to rise by about 3%, after the modest 1.3% Q1 increase. Auto industry observers reckon sales rebounded somewhat in May, and we expect steady gains in non-auto spending, given solid growth in real incomes and sky-high consumer confidence.”