The core Personal Consumption Expenditures (PCE) Price Index, favored by the Federal Reserve as a measure of inflation, increased by 0.3% month-over-month, bringing the annual rate to 3.2%, according to Commerce Department data. This figure aligned with predictions and represented the highest level since November 2023.
When factoring in food and energy, inflation surged by 0.7% for the month, with an annual rate of 3.5%, predominantly fueled by significant hikes in energy prices.
Conversely, economic growth showed signs of cooling. Gross domestic product (GDP) grew at an annualized rate of 2% in the first quarter (Q1), an increase from 0.5% in the previous quarter but below the anticipated rate of 2.2%.
Meanwhile, the labour market remained robust. Initial jobless claims dropped to 189,000 for the week ending April 25, marking the lowest figure since September 1969, indicating sustained stability in hiring patterns.
“This is a divided economy,” stated Heather Long, Chief Economist at Navy Federal Credit Union, in an interview with CNBC International. “Companies and investors involved in AI are thriving. In contrast, middle and moderate-income households are struggling with soaring gas prices and inflation reaching its highest in three years.”
The inflation increase was primarily due to rising goods prices, which climbed by 1.4%, including an 11.6% spike in energy-related sectors. Service sector inflation remained more subdued at 0.3%.
Escalating fuel costs seem to have impacted consumer spending negatively. Personal consumption increased by just 1.6%, with expenditures on goods decreasing by 0.1%. A crucial indicator of underlying demand — real final sales to private domestic purchasers — rose by 2.5%.
Government expenditure also contributed to growth, rising by 4.4% overall, which includes a 9.3% increase at the federal level.
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The release of this data coincided with the Federal Reserve’s decision to maintain interest rates, although dissent within the Federal Open Market Committee highlighted differing views on the policy direction, particularly as inflation stays above target while the labour market remains stable.
