A key measure of inflation in the United States has risen again, hitting a new four-decade high as the Federal Reserve attempts to navigate the twin threats of rising prices and a shrinking economy.
The personal consumption expenditures (PCE) price index soared 6.8 percent in the 12 months through June, the biggest increase since January 1982 and a jump from May’s reading of 6.3 percent.
The PCE measure, which is preferred by the Federal Reserve for its flexible 2 percent target rate, is an alternative gauge to the better-known consumer price index, which jumped 9.1 percent in June from a year ago.
Both measures are released monthly, and use different methods to calculate how much prices have risen for the average consumer.
The personal consumption expenditures (PCE) price index is seen from 1980 through June
Federal Reserve Board Chairman Jerome Powell pauses during a news conference following a meeting of the Federal Open Market Committee (FOMC) on Wednesday
Excluding the volatile food and energy components, the PCE price index shot up 0.6 percent from the prior month after climbing 0.3 percent in May, in another sign that inflation is trending hot.
The so-called core PCE price index increased 4.8 percent on an annual basis in June after rising 4.7 percent in May.
The Commerce Department’s report on Friday also showed that consumer spending, which accounts for more than two-thirds of US economic activity, rose 1.1 percent last month from May, more than expected.
The bump in consumer spending was nominally good news for the economy — but nearly all of the increase was due to inflation, the report revealed.
Adjusted for inflation, consumer spending rose only 0.1 percent in June from the prior month. That was still a gain over May’s inflation-adjusted change of -0.3 percent.
A better-known inflation gauge, the consumer price index, hit 9.1% in June
The latest data comes on a week of turbulent economic news that is forcing the Federal Reserve into a dilemma as it weighs monetary policy.
The Fed has been raising its benchmark interest rate aggressively to tackle inflation, adding on another supersized 0.75 point rate hike on Wednesday.
But the central bank faces tough choices about whether to continue raising rates after new data on Thursday showed the US economy contracted for the second quarter in a row.
Higher interest rates are the Fed’s main tool to combat inflation. But raising the cost to borrow money also discourages consumers and businesses from taking out loans, reducing spending and putting pressure on economic growth.
It follows grim economic news that spurred furious debate this week about whether the US has entered a recession.
The Commerce Department said in a report on Thursday that US gross domestic product shrank 0.9 percent in the second quarter, following a decline of 1.6 percent decline in the first quarter.
US gross domestic product shrank 0.9 percent in the second quarter, following a decline of 1.6 percent decline in the first quarter
Quarterly GDP growth is seen over the past four years, showing the pandemic recession in early 2020 and the current contraction cycle
Two consecutive quarters of shrinking GDP is the informal and longstanding definition of a recession, but the Biden administration insists that the US economy does not qualify as recessionary.
President Joe Biden insisted that the US economy is ‘on the right path’ despite the slowdown, touting the strong labor market.
‘That doesn’t sound like a recession to me,’ he said in remarks at the White House.
It is true that most economists are reluctant to label the current situation a recession yet.
Unemployment remains near a five-decade low of 3.6 percent, and the economy has been creating jobs at a rapid pace in recent months.
There has never been a recession in the US that was not accompanied by a rapid increase in the unemployment rate.
The US unemployment rate is seen since 1948, with periods of recession shaded in grey. There has never been a recession that was not accompanied by a rapid rise in unemployment
The economy has added more than 1 million jobs in the past three months, even as economic growth slowed, in another confusing signal
Still, the second consecutive quarter of negative growth was a grim warning signal that all is not well with the economy.
‘Seven of the nine leading indicators we tracked in June sent negative or neutral signals, highlighting continued weakening of economic conditions and possibly recession,’ said S&P Global Ratings U.S. Chief Economist Beth Ann Bovino in a note to DailyMail.com.
Apart from the United States, the global economy as a whole is also grappling with high inflation and weakening growth, especially after Russia’s invasion of Ukraine sent energy and food prices soaring.
Europe, highly dependent on Russian natural gas, appears especially vulnerable to a recession. Repeated rounds of COVID-19 lockdowns in China have also disrupted world trade and supply chains.
In the United States, the inflation surge and fear of a recession have eroded consumer confidence and stirred public anxiety about the economy, which is sending frustratingly mixed signals.
With the November midterm elections nearing, Americans’ discontent with the economy has diminished Biden’s approval ratings and could increase the likelihood that the Democrats will lose control of the House and Senate.