WASHINGTON: The US Federal Reserve’s (Fed) favoured top-line inflation gauge is rapidly approaching 4% as a war-driven spike in energy costs generates unease that price pressures will broaden.
Government data this week are expected to show the personal consumption expenditures (PCE) price index jumped 3.8% in April from a year ago.
That would put inflation a full percentage point higher than it was in February, marking the biggest two-month acceleration since late 2021.
Even stripping out energy and food, the so-called core price measure likely picked up in April to the fastest pace since late 2023.
The surge in prices for fuel and other materials created by the war in Iran is reverberating throughout the world economy, with consumer sentiment in the United States tumbling to a record low and global businesses highlighting cost concerns.
What’s more, inflation expectations are mounting, and bond yields are climbing.
In addition to the inflation data, several Fed officials are set to speak in the coming week, including John Williams, Philip Jefferson, Neel Kashkari and Alberto Musalem.
Investors will parse their comments for any concern about the longer-term outlook for inflation given persistent supply constraints related to the Middle East conflict.
Last Friday, Fed Governor Christopher Waller said he supports making clear that the central bank’s next interest-rate move is just as likely to be an increase as a cut.
In addition to the PCE price data, the Bureau of Economic Analysis’ report is expected to include figures on personal spending and incomes as well.
Those will offer an early peek into household demand at the start of the second quarter (2Q).
Economists expect a modest increase in inflation-adjusted spending and a slowdown in the nominal growth of personal income.
Petrol prices near the highest since 2022 are compounding Americans’ concerns about the cost of living.
The toll of inflation on household budgets poses a risk to the spending outlook.
Bloomberg Economics said: “If confidence weakens further, it would reinforce the risk that spending momentum softens into summer.
“The latest earnings for companies in the consumer-discretionary sector, such as Target, indicate that tax refunds have supported spending so far.
“If the Strait of Hormuz remains closed, sustained higher gas prices will erode the tax-refund cushion.”
On Thursday, the government will issue a revised 1Q gross domestic product report that includes personal outlays for the period. — Bloomberg
