The main inflation indicator soared by 3.1% through April – the biggest jump since 1992

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US consumer prices rose in April, with a major measure of underlying inflation slipping past the Federal Reserve’s 2 percent target and posting its largest annual profit since 1992.

In the twelve months to April, the personal consumption expenditure price index rose 3.1 percent, the highest number since July 1992, after rising 1.9 percent in March, data released Friday.

A massive increase in the money supply to fund COVID stimulus measures, supply chain disruptions causing shortages, and pent-up consumer demand as the pandemic abates are all blamed as reasons for the strong inflation.

While the new inflation measure beat economists’ forecasts, Fed Chairman Jerome Powell has repeatedly insisted that higher inflation will be transient and that the news is not expected to impact monetary policy.

The US central bank cut its benchmark overnight rate to nearly zero last year and continues to flood the economy with money through monthly bond purchases.

The Fed has indicated it could tolerate higher inflation for some time to compensate for years when inflation remained below the 2 percent target, a flexible average.

The U.S. M1 money supply, including cash and checks, is booming during the pandemic in this Federal Reserve chart

The U.S. M1 money supply, including cash and checks, is booming during the pandemic in this Federal Reserve chart

A person shopper walks outside of Tesla in New York's Meatpacking District on May 23.  Consumer spending is rising and contributing to rising inflation

A person shopper walks outside of Tesla in New York’s Meatpacking District on May 23. Consumer spending is rising and contributing to rising inflation

The central bank considers a controlled amount of inflation to be good because it encourages spending and investing rather than saving cash.

But out-of-control inflation can be dangerous, erode consumer purchasing power and hit low-income families and elderly retirees the hardest.

Analysts say supply constraints come into play, due to the shift in demand for goods and away from services during the pandemic.

A turnaround is underway, with Americans flying to vacation destinations and staying in hotels, among other things.

“The great spin from consumer spending to services has begun,” said Gregory Daco, US chief economist at Oxford Economics. “As health continues to improve and the economy reopens, generous fiscal stimulus, job recovery and growing optimism will help let go of pent-up demand.”

Consumer prices as measured by the personal consumption expenditure (PCE) price index, but excluding the volatile food and energy components, rose 0.7 percent last month amid strong gains in both goods and services.

That was the largest increase in the so-called core PCE price index since October 2001 and followed a 0.4 percent increase in March.

A sheet of US one dollar bills is seen in a file photo during production at the Bureau of Engraving and Printing.  Fears of inflation raise questions about the money supply

A sheet of US one dollar bills is seen in a file photo during production at the Bureau of Engraving and Printing. Fears of inflation raise questions about the money supply

The consumer price index for urban consumers shows an index of price increases over time

The consumer price index for urban consumers shows an index of price increases over time

“Many goods are scarce due to very strong demand and supply chain disruptions, and some services prices have risen sharply as consumers go out again,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.

Labor shortages in some industries also contribute to higher prices. But many of these factors will turn out to be transient and inflation will decline in the second half of 2021, ”he predicted.

Some economists are not convinced that higher inflation will be temporary.

A survey by the University of Michigan on Friday found that consumer inflation expectations over a year skyrocketed to 4.6 percent in May from 3.4 percent in April, hurting household sentiment. Their five-year inflation expectations rose from 2.7 percent last month to 3.0 percent.

“Concerns about the future may cause households to become more conservative in their spending,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “The Fed suspects the rise in inflation will be temporary, and that better be true.”

Although consumer spending moderated last month as income gains faded from stimulus controls, households accumulated at least $ 2.3 trillion in excess savings during the pandemic, which should support demand. Wages are also rising as companies try to recruit labor to increase production.

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.5 percent last month.  Upstairs, shoppers stroll outside the Hudson Yard shopping center in Manhattan

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.5 percent last month. Above the shoppers wall outside the Hudson Yard shopping center in Manhattan

Generous government-funded unemployment benefits, childcare problems and fears of contracting the virus, even with vaccines that are widely available, and pandemic-related retirements have led companies to seek employment.

That’s despite nearly 10 million Americans being officially unemployed. Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.5 percent last month. The data for March was revised higher to show that spending was up 4.7 percent from 4.2 percent as previously reported.

The increase in expenditure was in line with expectations. Expenditure was held back by a 0.6 percent decrease in expenditure on goods. While purchases of durable goods, such as motor vehicles, increased by 0.5 percent, spending on non-durable goods fell by 1.3 percent. Spending on services was up 1.1 percent, mainly due to spending on recreation, hotel accommodation and restaurants.

Adjusted for inflation, consumer spending fell by 0.1 percent after an increase of 4.1 percent in March.

Despite the dip in so-called real consumer spending last month, March’s solid rise put second-quarter consumption on a higher growth trajectory.

Personal income fell 13.1 percent after an increase of 20.9 percent in March. As spending exceeded income, the savings rate fell from 27.7 percent in March to a still-high 14.9 percent. Wages rose 1.0 percent for a second month in a row.

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