US inflation picks up in April, spending slows

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WASHINGTON: US consumer prices increased in April, which could support the Federal Reserve’s contention that recent low inflation readings were transitory and allow the central bank to keep interest rates unchanged for a while.

The Commerce Department said on Friday its personal consumption expenditures (PCE) price index increased 0.3pc last month after rising 0.2pc in March. That lifted the annual increase in the PCE price index to 1.5pc from 1.4pc in March.

Excluding the volatile food and energy components, the PCE price index gained 0.2pc last month after edging up 0.1pc in March. In the 12 months through April, the so-called core PCE price index increased 1.6pc after rising 1.5pc in March.

The core PCE index is the Fed’s preferred inflation measure. It hit the US central bank’s 2pc inflation target in March 2018 for the first time since April 2012.

Persistently tame inflation together with slowing economic growth have led to calls, including from President Donald Trump, for the Fed to cut rates. Fed Chairman Jerome Powell has maintained the soft readings “may wind up being transient.” The Fed this month kept rates unchanged and signalled little inclination to adjust monetary policy anytime soon.

A much weaker inflation pulse than initially thought in the first quarter had led economists to anticipate a moderation in the annual core PCE price index in April.

The government also reported on Friday that consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.3pc as consumers spent less on services, including household electricity and gas.

Data for March was revised up to show consumer spending jumping 1.1pc, the biggest increase since August 2009, instead of the previously reported 0.9pc rise. Economists polled by Reuters had forecast consumer spending would advance 0.2pc in April.

When adjusted for inflation, consumer spending was unchanged in April. This so-called real consumer spending rose 0.9pc in March.

The weak real consumer spending reading in April suggests slower economic growth in the second quarter.

Consumer spending increased at a 1.3pc annualized rate in the first quarter, the slowest in a year. The overall economy grew at a 3.1pc rate last quarter, flattered by the volatile exports, inventory and defense components. Growth estimates for the April-June quarter are below a 2.0pc rate.

Personal income rose 0.5pc in April after ticking up 0.1pc in March. Savings increased to $990.3 billion in April from $963.7 billion in March.

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