A key measure of inflation in the United States has risen again, hitting a new four-decade high as the Federal Reserve tries to deal with the twin threats of rising prices and a contracting economy.
The personal consumption expenditure (PCE) price index rose 6.8 percent in the 12 months to June, the sharpest rise since January 1982 and a 6.3 percent jump in May.
The PCE measure, favored by the Federal Reserve for its flexible 2 percent target rate, is an alternative measure for the better-known CPI, which rose 9.1 percent in June from a year earlier.
Both metrics are released monthly and use different methods to calculate how much prices have increased for the average consumer.
The personal consumption expenditure (PCE) price index is seen from 1980 to June
Federal Reserve Board Chairman Jerome Powell pauses during a news conference following a Federal Open Market Committee (FOMC) meeting on Wednesday
Excluding the volatile food and energy components, the PCE price index shot up 0.6 percent month-on-month after rising 0.3 percent in May, another sign that inflation is heating up.
The so-called core PCE price index rose 4.8 percent on an annualized basis in June after rising 4.7 percent in May.
Friday’s Commerce Department report 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 surge in consumer spending was nominally good news for the economy – but almost all of the increase was due to inflation, the report revealed.
Adjusted for inflation, consumer spending increased by just 0.1 percent in June compared to the previous month. That was still a gain from the inflation-adjusted change of -0.3 percent in May.
A better-known indicator of inflation, the consumer price index, hit 9.1% in June
The latest data comes as a week of turbulent economic news leaves the Federal Reserve in a quandary as it considers monetary policy.
The Fed aggressively raised interest rates to fight inflation and added another outsized 0.75 point rate hike on Wednesday.
But the central bank faces tough decisions on whether to hike interest rates further after new data on Thursday showed the US economy contracted for a second straight quarter.
Higher interest rates are the Fed’s primary anti-inflation tool. But rising borrowing costs are also discouraging consumers and businesses from borrowing, cutting spending and putting pressure on economic growth.
Somber economic news followed, sparking a furious debate this week over whether the US has entered a recession.
The Commerce Department said in a report Thursday that U.S. gross domestic product shrank 0.9 percent in the second quarter after contracting 1.6 percent in the first quarter.
U.S. gross domestic product shrank 0.9 percent in the second quarter, after a 1.6 percent contraction in the first quarter
Quarterly GDP growth over the last four years shows the pandemic recession in early 2020 and the current contraction cycle
Two consecutive quarters of contracting GDP is the informal and longstanding definition of a recession, but the Biden administration insists the US economy is not considered recessionary.
President Joe Biden insisted the US economy is “on track” despite the slowdown, touting the strong job market.
“That doesn’t sound like a recession to me,” he said in a speech at the White House.
It is true that most economists are still reluctant to call the current situation a recession.
Unemployment remains at a five-decade low at 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 hasn’t been accompanied by a soaring unemployment rate.
The US unemployment rate is shown since 1948, with periods of recession shaded gray. There has never been a recession that hasn’t been accompanied by a rapid rise in unemployment
The economy added more than 1 million jobs over the past three months even as economic growth slowed, another confusing signal
Still, the second consecutive quarter of negative growth was a dire warning sign that all is not well with the economy.
“Seven of the nine leading indicators we tracked in June sent negative or neutral signals, pointing to continued weakening in economic conditions and possible recession,” said Beth Ann Bovino, US chief economist at S&P Global Ratings, in a statement to DailyMail.com.
Aside from the United States, the global economy as a whole is grappling with high inflation and flagging growth, particularly after the Russian invasion of Ukraine pushed up energy and food prices.
Europe, which is heavily dependent on Russian natural gas, appears particularly vulnerable to a recession. Repeated rounds of COVID-19 lockdowns in China have also disrupted global trade and supply chains.
In the United States, surging inflation and fears of a recession have shaken consumer confidence and raised public concern about the economy, which is sending out frustratingly mixed signals.
With midterm elections approaching in November, American dissatisfaction with the economy has lowered Biden’s approval ratings and could increase the likelihood of Democrats losing control of the House and Senate.
