By Lucia Mutikani
WASHINGTON (Reuters) – US consumer prices rose to a 15-month high in April, but a cooling in spending pointed to a slowdown in economic growth that could keep inflationary pressures subdued.
The Department of Commerce report on Friday supported the opinion of Federal Reserve Chairman Jerome Powell that a recent disinflationary trend "could end up being transitory."
Inflation remains below the 2.0% target of the US central bank. That, along with the slowdown in the economy, has increased calls, even from President Donald Trump, to the Fed to cut interest rates. The Fed this month kept rates unchanged and showed little desire to adjust monetary policy in the short term.
"The Fed is in a good place when it comes to its current policy, but it will not be long if the market forecasts for rate cuts are created," said Chris Rupkey, chief economist at MUFG in New York. "The market and the president want rate cuts and could get them if this slowdown persists and the Fed gives in to the mafia of public opinion."
Consumer prices, measured by the personal consumption expenditure (PCE) price index, increased 0.3% last month, the highest gain since January 2018, after the 0.2% increase in March.
That raised the annual increase in the PCE price index to 1.5% from 1.4% in March. Inflation was driven by higher prices for gasoline and services, which offset a 0.3% drop in the cost of food.
Excluding the volatile components of food and energy, the PCE price index rose 0.2% last month, after rising 0.1% in March. In the 12 months to April, the so-called central PCE price index increased 1.6% after having increased 1.5% in March.
The main PCE index is the preferred inflation measure of the Fed. It reached the inflation target of 2% of the US central bank in March 2018 for the first time since April 2012.
A much weaker pulse of inflation than initially thought in the first quarter had led economists to anticipate that the annual central PCE price index would remain at 1.5% in April.
COMMERCIAL DISPUTES OF THE CLOUD
Economists said it was not clear what the impact on inflation would be on Trump's announcement on Thursday night that it would impose a tariff on all of Mexico's badets in an attempt to stem the tide of illegal immigration across the border. USA UU And Mexico.
But tariffs, which according to Trump would start at 5% on June 10 and increase monthly to reach 25% on October 1, unless Mexico took immediate action, should undermine growth.
Washington is already waging a trade war with China that has recently intensified and has led consumers to anticipate higher prices. A survey conducted by the University of Michigan on Friday showed that the measure of consumer inflation expectations over the next 12 months increased to 2.9% in May from 2.5% in April.
"There is little doubt that economic growth will suffer every day that these rates are maintained," 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 it is, there are not many places to hide."
Stocks on Wall Street traded down as Mexican goods tariffs rocked investors.
The dollar fell against a basket of currencies, while the reference yields of the US Treasury fell to a 20-month low.
Consumer spending, which accounts for more than two-thirds of economic activity in the United States, increased by 0.3% as consumers reduced purchases of long-lived manufactured goods, such as motor vehicles. They also spent less on services, including electricity and gas for the home.
Consumer spending increased 1.1% in March, the largest increase since August 2009. When adjusted for inflation, consumer spending remained unchanged in April. This so-called real consumption expenditure increased by 0.9% in March.
The weak real consumer spending in April added to the soft reports on industrial production, orders for long-lasting manufactured goods and home sales, suggesting slower economic growth in the second quarter.
As a result, the Atlanta Fed reduced its GDP estimate for the second quarter by one tenth of a percentage point at an annualized rate of 1.2%. The economy grew at a rate of 3.1% in the last quarter, flattered by the volatile components of exports, inventory and defense.
But consumer spending is still supported by a strong labor market. The lowest unemployment rate in almost 50 years is constantly increasing wages.
Last month, personal income increased 0.5% in April, with salaries gaining 0.3%. Revenues increased 0.1% in March. The savings increased to $ 990.3 billion in April from $ 963.7 billion in March.
(Report by Lucia Mutikani; Edited by Paul Simao)