Inflation Accelerates in April, Showing Relief From High Prices Remains Elusive

A popular measure of inflation got worse in April, ticking back up despite hopes that consumers were starting to move past stubbornly high prices. 

The government’s PCE price index rose 0.4% in April, accelerating from March’s pace of 0.1%, as the cost of things like used cars and parts, rental housing, clothing, shoes, gas, and hospital stays overshadowed a slight drop in grocery prices. It was the second monthly decline in groceries after more than two straight years of increases. 

The inflation rate, a measure of price growth over the last year, also increased, rising to 4.4% from 4.2% in March. Excluding food and energy prices, the so-called core rate accelerated to 4.7%, worse than the 4.6% economists had expected. 

Inflation rates have come down from last year’s peaks but aren’t consistently moving in the right direction, despite the Federal Reserve’s aggressive campaign to tamp consumer demand by raising borrowing costs. When inflation cools as slowly as it has, households find themselves stuck with higher credit card rates as well as bigger tabs for all sorts of goods and services.

PCE is the inflation measure Fed officials look at most as they determine what to do to get it back in their target range of about 2%. The other widely followed indicator is the Consumer Price Index, which also showed inflation rising faster in April than in March. On a year-over-year basis, however, the CPI slowed slightly to 4.9%, the lowest rate in two years.

Fed officials who have been raising the central bank’s benchmark interest rate to thwart spiking prices recently signaled they might be done, at least for now. The new inflation numbers boost the case for raising it further. 

“We still think [inflation] will slow sharply in the second half of the year, but we are increasingly doubtful the Fed will have the patience to hold back from hiking, especially if the spending side is holding up as well as it seems,” James Knightley, chief international economist at ING, said in a statement.

Indeed, one reason for the persistent inflation may be a more resilient consumer. Excluding the impact of higher prices, spending rose 0.5% in April, increasing for only the second time in six months and faster than the 0.3% economists expected. 

The personal saving rate, the share of disposable income people don’t spend, ticked down to 4.1% from 4.5% (lower than previously reported) in March. It was as low as 2.7% last year but has often been in the 6%-7% range and was a staggering 33.8% at the start of the pandemic in 2020.