The Fed’s Favored Inflation Gauge Just Hit The Highest Level Since 1992

The Fed’s Favored Inflation Gauge Just Hit The Highest Level Since 1992
Andrew Rummer

over 2 years ago1 min

The measure of US inflation watched closest by the Federal Reserve (the Fed) jumped to the highest level since 1992 in April, data released on Friday showed. 

The so-called core personal consumption expenditure (PCE) gauge, which excludes food and fuel prices, climbed 3.1% from a year earlier – even faster than the 2.9% average forecast from economists. On the chart above, you can see how this data point has moved since 1980. 

The Fed aims to keep this inflation measure below 2%, although in August 2020 the central bank introduced a new policy to allow it to reach an average of 2% “over time”. And because this core PCE number was closer to 1% than 2% for a large chunk of last year, the Fed is unlikely to start trimming its economic support just yet.

US stocks and bonds barely reacted to today’s data in the minutes after release, suggesting investors were well prepared for such a hefty inflation number to cross their screens.

"As health conditions improve and the economy reopens, generous fiscal stimulus, rebounding employment and rising optimism will help unleash pent-up demand," was Oxford Economics' take on the data. "While we foresee increased inflation stickiness, with core PCE inflation hovering around 3.0% in 2021, we don’t foresee runaway inflation."

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