- Core PCE price index rose 0.2% in April, smallest gain of year
- Inflation-adjusted spending fell, restrained by tepid services
The Federal Reserve’s preferred measure of underlying US inflation moderated in April and consumers dialed back their spending, supporting plans for an eventual reduction in interest rates. The so-called core personal consumption expenditures price index, which strips out the volatile food and energy components, increased 0.2% from the prior month. That marked the smallest advance of the year, according to Bureau of Economic Analysis data out Friday. Inflation-adjusted consumer spending unexpectedly fell 0.1%, dragged down by a decrease in outlays for goods and softer services spending. Wage growth, the primary fuel for demand, moderated. The report offers Fed officials some solace about the pathway for inflation after progress on price pressures was interrupted in the first quarter. At the same time, the April spending figures add to evidence that the year is off to a slow start for the economy.
| Metric | Actual | Estimate |
|---|---|---|
| PCE price index (MoM) | +0.3% | +0.3% |
| Core PCE price index (MoM) | +0.2% | +0.2% |
| PCE price index (YoY) | +2.7% | +2.7% |
| Core PCE price index (YoY) | +2.8% | +2.8% |
| Real consumer spending (MoM) | -0.1% | +0.1% |
Central bankers pay close attention to services inflation excluding housing and energy, which tends to be more sticky. That metric climbed 0.3% after rising 0.4% in March, according to the BEA. Meanwhile household demand, while fueled by steady job and income growth, is showing signs of cooling. The BEA’s report showed inflation-adjusted outlays for services rose 0.1%, the smallest gain since August. Spending on merchandise decreased 0.4% last month .Goods outlays were restrained by declines in gasoline and vehicle purchases. While health care spending supported outlays for services, other categories such as restaurant meals, recreation and transportation decreased during the month. Looking ahead, with household debt hitting a record, consumer confidence generally trending lower and interest rates at a two-decade high, it remains to be seen to what extent consumers will continue powering the economy. A report out Thursday showed the US economy grew at a slower pace in the first quarter than initially reported, in part because consumer spending was marked down on weaker demand for goods — particularly motor vehicles.