This week in the U.S., the core PCE price index data was released for April. The PCE index looks at prices paid by consumers for goods and services and removes the volatility caused by movements in food and energy prices to reveal underlying inflation trends.
A more well-known indicator of inflation is the Consumer Price Index, which measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods. But while the CPI is more widely known, the core PCE price index is what the Fed looks at when aiming to keep inflation near 2%.
For April, this key U.S. inflation metric rose 3.1% year-over-year, higher than both consensus expectations and the Fed target. And while the low base effect from 2020—exceedingly low due to the pandemic lockdowns—is likely to blame for most of this increase, the jump was the highest year-on-year since the 1990s. And the monthly increase of 0.7% in April was almost double the 0.4% for March.
The data will likely raise additional concerns about the economy overheating and reaction from the Fed. However, officials from the central bank continue their dovish stance. Policymakers will likely wait to see what happens over the next few months and whether the metric falls back toward the end of the summer as many experts believe the increase is transitory.
The market had a similar muted reaction to the data. Initial concerns about the measure were shrugged off by both equity and bond markets. Yields on the 10-year Treasury remained steady after the release, and equities edged higher ahead of the three-day Memorial Day weekend.
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