The Federal Reserve’s preferred inflation gauge, the so-called core personal consumption expenditures (PCE) price index, vaulted in the 12 months through July to levels not seen in 30 years.
The Commerce Department said in a release Friday that core PCE rose 3.6 percent over the year in July, matching last month’s level, which was an increase from 3.5 percent in May and 3.1 percent in April.
The last time the core PCE inflation gauge saw a similar year-over-year vault was in July 1991, while the highest level the measure has hit is 10.2 percent in February 1975, when the economy was gripped in a troubling upwards wage-price spiral fueled by rising inflation expectations on the part of consumers.
The Fed looks to core PCE as a key inflation measure that informs its monetary policy, which has an inflation target of a longer-run average of 2 percent.
On a monthly basis, the core PCE gauge rose 0.3 percent between June and July, after rising 0.5 percent the prior month, suggesting inflationary pressures may have peaked.
It comes as Fed officials are meeting virtually for an annual economic symposium in Jackson Hole, Wyoming, on Friday, with investors watching closely for signs of when and how the central bank may begin to roll back its extraordinary support measures for the economy. In response to the pandemic hit to the economy, the Fed last year dropped interest rates to near zero and set out on a massive asset purchasing program, buying around $80 billion in Treasury securities and $40 billion in mortgage securities per month.
In a speech Friday, Federal Reserve Chair Jerome Powell addressed inflationary pressures, acknowledging a “sharp run-up in inflation” driven by the rapid reopening of the economy while reiterating his oft-repeated view that price pressures would moderate once supply-side shortages and bottlenecks further abate.
Powell acknowledged the relatively high level of Friday’s core PCE print, noting it’s “well above our 2 percent longer-run objective” and that both businesses and consumers “widely report upward pressure on prices and wages.”
By Tom Ozimek
