A key US inflation gauge posted its highest annual increase in nearly three years, reflecting a surge in energy prices triggered by the war in Iran.
The US Commerce Department announced Tuesday that the personal consumption expenditures (PCE) price index rose 3.8% in April from a year earlier. The figure matched analysts' expectations of 3.8% but marked the highest annual increase in two years and 11 months since May 2023, when it stood at 4.0%. On a monthly basis, the index rose 0.4%. The core PCE price index, which excludes energy and food, climbed 3.3% from a year earlier, the highest level since October 2023.
The PCE price index is the inflation gauge most closely watched by the US Federal Reserve in setting the direction of monetary policy. The index has recently shown an accelerating trend as international oil prices have surged in the wake of the war in Iran.
Analysts said the latest inflation reading also reflected the energy shock from the Middle East. Bloomberg said, "The war in Iran has driven up international oil and natural gas prices, pushing US annual inflation higher at the fastest pace since 2023."
With inflation continuing to run well above the Fed's 2% target, the possibility of a rate hike is also being raised. Federal Reserve Governor Lisa Cook said at a forum hosted by the Stanford Institute for Economic Policy Research in California on Monday, "It is clear that inflation risks remain elevated," adding, "We are prepared to raise rates if disinflation takes longer than expected."
Meanwhile, the preliminary estimate of US gross domestic product (GDP) growth for the first quarter came in at an annualized 1.6% from the previous quarter. The figure was 0.4 percentage point lower than the advance estimate of 2.0% released last month and also fell short of the 2.0% consensus estimate compiled by Dow Jones. Slower-than-expected growth in inventory investment and consumer spending was cited as the main factor behind the downward revision.
