An inflation indicator rose from a yearly pace of 3.1% in April, topping the expectations of forecasters and adding to concerns about overheating.
The metric was released on Friday by the Commerce Department. The personal consumption expenditures index, excluding volatile food and energy costs, had been predicted to rise by 2.9%, which is still a large increase from March, when it increased by 1.9%.
For just the month of April, core PCE rose by 0.7%, slightly ahead of expectations and nearly double the preceding month. By comparison, in January and February, the indicator rose by only 0.2% and 0.1%, respectively. When including food and energy prices, the PCE rose 3.6% year over year and 0.6% from March.
Separate from the metric is the Labor Department’s Consumer Price Index, which also gauges inflation. Earlier this month, it was announced that consumer prices rose 4.2% for the year ending in April, with costs rising across the board.
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The Federal Reserve is targeting 2% inflation and full employment before it backs off of its controversial stance against raising interest rates. The Fed is unlikely to be shaken by Friday’s numbers as it has said it expects current inflation, which it sees as transitory, to breach that 2% target this year before sinking back down.
Despite the Fed’s tack, some economists fear that the economy, enriched by exploding demand and fed by enormous quantities of federal spending, could overheat and send prices soaring. Former Treasury Secretary Larry Summers, a Democrat who served under Presidents Bill Clinton and Barack Obama, is warning that inflation and overheating are now the biggest threat to economic stability.
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“This is not just conjecture,” Summers recently said in an op-ed. “The consumer price index rose at a 7.5 percent annual rate in the first quarter, and inflation expectations jumped at the fastest rate since inflation indexed bonds were introduced a generation ago. Already, consumer prices have risen almost as much as the Fed predicted for the whole year.”
