Core inflation hit an annual rate of 3.3% in April, as expected, Fed’s preferred gauge shows

Inflation continued to hit consumer wallets in April, likely keeping the Federal Reserve on the sidelines until the current wave subsides, fresh pricing data released Thursday showed.

The personal consumption expenditures price index increased a seasonally adjusted 0.4% for the month, putting the 12-month inflation rate at 3.8%, the Commerce Department reported. Economists surveyed by Dow Jones had been looking for respective readings of 0.5% and 3.8%.

Excluding food and energy, core prices rose 0.2% for the month and 3.3% for the year, against estimates of 0.3% and 3.3%.

The 12-month level for headline inflation was the highest since May 2023. For core, the annual level was the peak since November 2023.

While the annual rates were in line with forecasts, the soft monthly readings could provide some hope that the burst in prices over the previous month had begun to ease.

The Fed takes in a wide dashboard of indicators, but uses the PCE measures as its prime forecasting and policy tool. Officials generally consider core a better indicator of long-term inflation trends as it excludes the volatile gas and groceries components.

In other economic news Thursday, gross domestic product growth in the first quarter was less than expected. GDP accelerated at an annualized rate of just 1.6% for the period, according to a revised Commerce Department reading that was below the initial estimate of 2%.

The department said the initial reading was cut because of downward revisions to consumer spending and investment. The consensus was for GDP to hold at the earlier 2% estimate.

Also, initial jobless claims for the week ended May 23 totaled a seasonally adjusted 215,000, up 5,000 from the prior period and slightly above the 213,000 forecast, according to the Labor Department. Finally, orders for long-lasting “durable” goods such as aircraft, appliances and computers soared 7.9% in April, well ahead of the 3.5% estimate. However, excluding transportation, new orders were up 1.1%.

Despite the soft Q1 reading for GDP, the department reported that consumer spending increased 0.5% in April, meeting the forecast. Income, though, was flat, against the estimate for a 0.4% increase. Moreover, much of the spending boom appeared to come from a drawdown in the personal savings rate, which fell to 2.6%, its lowest since June 2022.

Stock market futures held negative after the data but were off their lows. Treasury yields were slightly negative, primarily at the longer-duration end.

On the inflation front, goods prices jumped 0.7% in April, pushed again by gasoline, which surged 5.5%. Services prices rose 0.3%, which included a 0.6% acceleration in the housing and utilities category and a 0.5% increase in food services and accommodations.

Housing prices broadly increased 0.5%, the biggest monthly gain going back at least until January 2025. Services excluding food, energy and housing rose just 0.2% for the month.

The inflation readings could provide some encouragement that underlying pressures are easing a bit, though they likely won’t change market expectations.

Traders expect the Fed to stay on hold until at least late in 2026 and currently are pricing the likelihood that the central bank’s next move will be a rate increase, possibly in the early part of the next year.

Inflation had been ticking closer to the central bank’s 2% goal, but the Iran war and the impact from tariffs has derailed the Fed. Policymakers recently have been placing a greater emphasis on the inflation danger as signs increase that the labor market is stabilizing.

New Fed Chair Kevin Warsh has indicated he believes the central bank’s benchmark rate could be lowered, though he’s likely to face opposition from the rest of the Federal Open Market Committee.