US inflation gauge sees sharp rise on speedy recovery

Fed says price rise is temporary despite biggest year-on-year rise since the 1990s

The US inflation gauge, a measure followed by the Federal Reserve to monitor price levels, showed the largest year-on-year rise since the 90s in April.

The news has created further speculation about inflationary pressures.

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The personal consumption expenditure index, which avoids using more volatile energy and food prices, is up by 3.1% in April year-on-year.

Compared to a 1.9% increase in March, it is a sharp rise, and also surpassed the consensus forecast by 0.2%.

Month-by-month, the personal consumption expenditure index rose by 0.7% in April and 0.4% the month before.

This puts the core price index significantly beyond the Federal Reserve’s target of 2%.

The Fed has reasserted its view that the figures show a short-term trend, including the stimulus packages and supply-chain bottlenecks.

Fiona Cincotta, senior financial markets analyst at City Index, says the Federal Reserve is expected to view the jump in PCE prices as temporary, rather than being spurred to raise interest rates.

“Core PCE, the Fed’s preferred measure of inflation, jumped to 3.1% YoY in April, up from 1.8% in March and ahead of the 2.9% forecast.”

“The futures were already trading higher ahead of the release and barely reacted to the high inflation numbers.”

“Fed officials have been consistently reassuring the market that they are willing to look through a period of high inflation, which they consider to be temporary. This was particularly the case after CPI hit a 13 year high of 4.2%.”

“This strong rise in PCE inflation could make it more difficult for the Fed to defend its dovish policy, but for now the market doesn’t appear concerned. High growth tech stocks which are usually dragged lower by fears of the Fed moving early have held onto gains. The US Dollar also remains elevated.”

Energy prices surged by 24.8% year-on-year while food prices increased 0.9% over the year.

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