Data released Friday by the Bureau of Economic Analysis shows that the Personal Consumption Expenditures Price Index (PCE) increased 2.8% compared to one year ago, excluding food and energy.
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This measure is the preferred measure of inflation to determine interest rates for the Federal Reserve Bank, according to its St. Louis branch. Last week, the Federal Reserve announced that it would keep interest rates flat at 4-1/4 to 4-1/2%.
When these rates increase, it can make borrowing money more expensive. As the U.S. reached a decades-high rate of inflation in the wake of the COVID-19 pandemic, the Fed increased rates in an effort to tame that inflation. While the Consumer Price Index, another popular measure of inflation has come down from a 9% high in June 2022 to 2.8% this month, both the CPI and PCE exceed the Fed’s 2% inflation goal.
As the rate stays above that goal, the likelihood of the Fed decreasing rates falls, and, according to CNBC, the Fed’s key measure rose more than expected last month. At the same time, consumer spending also posted a smaller-than-projected increase.
“The core personal consumption expenditures price index showed a 0.4% increase for the month, the biggest monthly gain since January 2024, putting the 12-month inflation rate at 2.8%,” said CNBC. “Economists surveyed by Dow Jones had been looking for respective numbers of 0.3% and 2.7%.”
POLITICO said the numbers released Friday could indicate that prices will spike even higher in coming months. It said that would likely not sit well with “price-sensitive businesses and consumers,” who have already weathered through inflation woes for some time. Price increases would also pose a challenge for President Donald Trump, the outlet added.
Even before the PCE report was released, there have been concerns about the impact of a tariff war kicked off by the president. Audacy reported this week on concerns about stagflation – a period of both high inflation and high joblessness – potentially hitting the U.S.
After the PCE report came out, USA Today reported that U.S. stocks plunged, with the Dow closing down more than 700 points and the S&P 500 shedding over 100 points amid heightened inflation and tariff concerns. It noted the PCE increase as a potential factor.
Gallup poll results released Thursday showed that Trump’s approval rating among his core Republican voters is higher this term than it was during his first time in the White House, but polling on policy issues showed significant overall dissatisfaction across eight key issues. In particular, 59% of people polled said that they disapproved of the Trump has handled the economy so far.
“Americans’ outlook for the economy is mixed and has grown a bit more pessimistic since last month, with relatively more expecting a slowdown or recession over the next year,” CBS News said Thursday, citing its own poll. “Ratings of today’s economy are unchanged overall and continue to be negative, much as they have been for years going back to the pandemic.”
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