The Personal Consumption Expenditures Price Index, the U.S. Federal Reserve’s favorite measure of inflation, rose 0.4 percent in April after gaining just 0.1 percent in March.

The index grew at an annual rate of 4.4 percent last month, compared to 4.2 percent in April. The yearly rate is well below the 7-percent peak reached in June 2022 but remains more than double the Fed’s 2-percent target rate.

The rise in prices was powered by consumers’ enthusiastic spending, which grew by 0.8 percent overall in April from March and 0.5 percent when adjusted for inflation. 

Shoppers boosted their spending on new cars as well as for clothing, computers, and auto fuel.

Also, orders for durable factory goods, which are meant to last at least three years, jumped 1.4 percent in April—a sign that higher interest rates and an uncertain economic outlook have not persuaded businesses to stop investing in production.  

Fed chair Jerome Powell indicated last month that the central bank was leaning toward pausing its 14-month campaign of interest rate increases when it meets on 14 June.

It can take as long as a year for higher interest rates to work their way through the economy and cut inflation, he said, giving the Fed reason to pause its hikes to see their effects.

However, some members of the rate-setting committee now maintain that inflation remains too persistent and that the bank’s rate should rise again.

The new data bolsters their argument and has persuaded interest-rate speculators that the Fed is more likely to hike again next month, as we report in “Markets See Fed Raising Interest Rate Again in June” in this issue.

TREND FORECAST: The U.S. labor department will report May employment numbers on 2 June. If Fed officials see the jobs market remaining as strong as it has been in previous months, they will be much more likely to raise the bank’s key rate again in June.