The Fed’s preferred inflation measure set a new 40-year high in June

The Fed's preferred inflation measure set a new 40-year high in June


Minneapolis
CNN Business

Another key measure of inflation hit a new 40-year high in June, a month marked by record gasoline prices.

The personal consumption expenditure price index, which measures the change in the prices of goods and services purchased by consumers, rose 6.8% in June compared with the same period last year, according to the data released. Friday by the Bureau of Economic Analysis.

This exceeds the previous 40-year high of 6.6% in March this year and falls just below the 6.9% year-on-year rate recorded in January 1982, when inflation was decelerating against at one of its highest levels in US history.

Prior to June, the PCE index held steady at 6.3% in May and April. However, in June, gasoline prices rose to record highs, and the PCE price index reflected these gains: food prices rose 11.2% and energy prices 43. 5%, according to the BEA. On a month-to-month basis, the PCE price index rose 1% from May.

Excluding volatility in food and energy prices, the core PCE – the inflation index closely watched by the Federal Reserve – rose 4.8% from a year ago, in up slightly from May but down from a high of 5.3% in February.

Soaring energy prices have helped push the consumer price indexanother leading indicator of inflation, at a nearly 41-year high in June, according to Bureau of Labor Statistics data released earlier this month.

BEA data on Friday showed Americans’ incomes rose 0.6% month over month, disposable income rose 0.7% and spending jumped 1.1%. However, adjusting for inflation, consumer spending rose only 0.1% and disposable income fell 0.3% month-over-month.

Consumer spending is slowing, mostly due to inflation, said Scott Brave, chief consumer spending economist at Morning Consult.

“Inflation-adjusted personal disposable income fell again in June, and has been on a consistent downward trend for over a year now,” Brave told CNN Business in an interview. “And that just puts the pressure on, it forces the consumer to respond, and I think we’re now reaching that point where growth is definitely slowing down.”

Low-income households were hit first, and they were hit the hardest, he said.

“More recently, we’ve started to see this filter in middle-income households as well,” he said. “They’re also starting to cut spending more and need to adjust their spending allowances.”

Understandably, consumers aren’t very happy with the state of the economy right now, especially high inflation.

An index of consumer sentiment in July measured 51.5, according to a final reading of data from the University of Michigan Consumer Surveys. It is slightly higher than July preliminary figure of 51.1 and sits above the all-time low of 50 set in June.

“Robust consumer spending was supported by strong labor markets and the expectation of income growth; but with consistently high prices eroding those incomes, consumers are adjusting their spending habits to cope,” Joanne Hsu, director of consumer surveys, said in a statement. “With concerns emerging that higher unemployment could be looming on the horizon, this pullback in consumer spending is likely to be amplified if their worries about future labor market developments continue to grow.”

Consumers in the July survey expect median inflation to land at 5.2% over the next year and around 2.9% over the next five years.

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