The Federal Reserve’s preferred inflation gauge rose 0.4% in April and 3.8% over the past 12 months, the highest annual rate in three years.
Core PCE, which excludes food and energy, increased 0.2% for the month and 3.3% year-over-year, remaining well above the Fed’s 2% target.
Rising energy prices and continued pressure on household budgets complicated expectations for near-term interest rate cuts.
The Federal Reserve’s preferred inflation measure accelerated in April, focusing attention on the central bank’s ongoing struggle to bring price increases back to its 2% target and dimming hopes for near-term interest rate cuts.
The Personal Consumption Expenditures Price Index rose 0.4% in April from the previous month and climbed 3.8% from a year earlier, according to the most recent Commerce Department data. That marked the highest annual increase since 2023.
Excluding volatile food and energy prices, the core PCE index increased 0.2% in April and 3.3% year-over-year. Economists and Federal Reserve policymakers closely monitor the core reading as a better indicator of underlying inflation trends.
The April figures showed some moderation from March’s sharp monthly increase, but inflation remains stubbornly elevated. Energy prices played a major role in the latest rise, with gasoline and electricity costs climbing, as geopolitical tensions pushed oil prices higher.
The PCE index is considered the Fed’s preferred inflation gauge because it captures a broader range of consumer spending patterns than the Consumer Price Index and adjusts as consumers change buying habits.
Household finances under pressure
The inflation report also pointed to growing pressure on household finances. The personal saving rate fell to 2.6% in April from 3.2% in March, while inflation-adjusted disposable income declined from a year earlier, suggesting consumers are increasingly relying on savings to maintain spending.
Financial markets reacted cautiously to the report. Investors have been looking for signs that inflation is cooling enough for the Fed to begin lowering interest rates later this year, but the latest data may reinforce the central bank’s wait-and-see approach.
Federal Reserve officials have repeatedly emphasized that future policy decisions will depend on incoming economic data. With inflation still running well above target, economists say policymakers are likely to remain cautious despite signs of slower economic growth elsewhere in the economy.
Gross domestic product growth for the first quarter was revised down to 1.6%, adding to concerns that consumers and businesses may be losing momentum as higher prices continue to squeeze purchasing power.