U.S. inflation rose 3.6% year on year, hitting a 13-year high

The personal consumption expenditure (PCE) index climbed 3.6%, year on year, in April and hit a 13-year high, indicating an increase in consumer prices. This development comes at a time when the country reopens for business.

The recorded surge is higher than the 1.9% annual rise in March, and the 2.9% consensus forecast. On a monthly basis, the core PCE increased 0.7% in April as compared to 0.4% in March. This measure is closely tracked by the Federal Reserve and fuels concerns surrounding price rise. 

PCE index measures price changes in consumer goods and services, excluding food and energy, in the U.S. economy. It has been the primary inflation index used by the U.S. Federal Reserve when making monetary policy decisions, since 2012. 

The Fed had announced that it intended on maintaining the inflation index to 2% but would consider letting it average higher than usual to promote employment. However, at this rate, the core PCE index will go way above levels that haven’t been recorded since the 1990s. Yet, the Fed has been lenient towards this surge citing heavy fiscal stimulus and supply chain bottlenecks.

The comparison with 2020 figures that were extremely low during the first lockdown is also one of the factors that have driven this increase.

The PCE index report also stated that personal income dropped 13.1% in April, as stimulus payments decreased, while consumption rose 0.5%. The US government debt market steadied following the release, with yields on longer-dated Treasuries barely changed, reported Financial Times.

The benchmark 10-year bond is trading at 1.61% after reaching a peak of 1.78% in March.

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