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By Lucia Mutikani
WASHINGTON (Reuters) – US consumer prices rose to a 15-month high in April, but a slowdown in spending suggested a slowdown in economic growth likely to contain inflationary pressures.
The Commerce Department report released on Friday supported the view of Federal Reserve Chairman Jerome Powell that a recent disinflationary trend "could be transitory."
Inflation remains below the US central bank's target of 2.0%. This, coupled with the slowing economy, has increased calls, including from President Donald Trump, for the Fed to cut interest rates. The Fed kept its rates unchanged this month and showed little willingness to quickly adjust its monetary policy.
"The Fed is well positioned for its current policy, but it will not be for long if we believe the market's predictions of lower rates," said Chris Rupkey, chief economist at MUFG in New York. "The market and the president want rate cuts and they could well get them if this slowdown persists and if the Fed clears before the crowd of public opinion".
Consumer prices, as measured by the personal consumption expenditure index, rose 0.3% last month, the largest increase since January 2018, following a 0.2% increase in consumer prices. March.
The annual rise in the PCE price index rose from 1.4% in March to 1.5%. Inflation was boosted by rising prices for gasoline and services, which offset a 0.3% drop in food costs.
Excluding volatile components of food and energy products, the PCE price index rose 0.2% last month, following a slight rise of 0.1% in March. In the last 12 months of April, the core PCE price index rose 1.6% after a 1.5% gain in March.
The basic PCE index is the measure of inflation favored by the Fed. It reached the 2% inflation target set by the US central bank in March 2018 for the first time since April 2012.
An impulse of inflation much lower than previously thought in the first quarter had led economists to predict that the basic index of CPE annual prices would remain at 1.5 % in April.
DISPUTES ON THE CLOUD
Economists have said that the impact of inflation on inflation following Trump's announcement last Thursday that it would impose a tariff on all goods from Mexico was aimed at stopping the wave of inflation. illegal immigration on the US-Mexico border.
But tariffs, which, according to Trump, would start at 5% on June 10 and rise monthly to 25% on October 1, unless Mexico takes immediate action, should weaken growth.
Washington is already leading a trade war with China that has recently degenerated and is leading consumers to anticipate higher prices. A study conducted Friday by the University of Michigan showed that its measure of consumer expectations of inflation over the next 12 months rose from 2.5% in April to 2.9% in May.
"There is little doubt that economic growth will suffer every day from maintaining these rates," said Kevin Giddis, head of fixed income capital markets at Raymond James in Memphis, Tennessee. "What we are not sure of is whether it will be inflationary.If that is the case, there are not many places to hide."
Stocks on Wall Street were trading down, with tariffs hitting Mexican products waving investors.
The dollar slid against a basket of currencies, while benchmark US Treasury yields fell to their lowest level in 20 months.
Consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.3% as consumers reduced their purchases of sustainable manufactured goods, such as motor vehicles. They also spent less on services, including electricity and domestic gas.
Consumer spending surged 1.1% in March, the largest increase since August 2009. Adjusted for inflation, consumer spending was unchanged in April. Real consumer spending rose 0.9% in March.
Weak consumer spending in April contributed to weak industrial production reports, orders for sustainable manufactures and home sales, suggesting a slowdown in economic growth in the second quarter.
As a result, the Atlanta Fed has reduced its GDP estimate for the second quarter by a tenth of a percentage point, to an annualized rate of 1.2%. The economy grew by 3.1% in the last quarter, weakened by the volatility of exports, inventories and defense.
But consumer spending remains supported by a strong labor market. The lowest unemployment rate in nearly 50 years has seen wages rise regularly.
Last month, personal income rose 0.5% in April and wages rose 0.3%. Income rose 0.1% in March. Savings reached $ 990.3 billion in April, up from $ 963.7 billion in March.
(Report of Lucia Mutikani, edited by Paul Simao)
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