It’s been more than thirty years since consumer inflation ran as hot as it did in July.

Consumer prices were up 4.2 percent compared with July of 2021, according to the Personal Consumption Expenditures Price Index released Friday. That’s the highest since January of 1991. Core prices, which strip out volatile food and energy costs, were up 3.6 percent, also a thirty-year high.

Fed officials use the PCE price index when targeting two percent inflation. Fed officials have argued that the PCE is better than the more familiar Consumer Price Index published by the Department of Labor because PCE allows for substitutions between similar items when one of them becomes more expensive. Over time, the PCE index and CPI tend to move together, although CPI tends to show more inflation than PCE.

Although the annual gains hit record highs, the pace of consumer inflation slowed on a monthly basis in July. Compared with June, prices rose 0.4 percent last month, a notch below the June gain of 0.5 percent. Core prices increased 0.3 percent in July from a month earlier, slower than June’s 0.5 percent.

Household income jumped by a sharp 1.1 percent gain, the Commerce Department reported Friday. That was the biggest jump since March stimulus check boost to income. And once again the source of the jump was government checks, this time in the form of the expanded child tax credit.

It’s likely inflation would have been higher if Americans had not decided to save much of that extra income. Spending rose by 0.3 percent, below expectations for an increase of 0.4 percent and markedly down from June’s 1.1 percent gain.

Spending on services grew in July while spending on goods declined, perhaps because consumers balked at high prices and found that many big-ticket items were simply unavailable.

Economists believe that consumers have pulled back from spending and are piling up savings as a precautionary measure amid the Delta variant surge in coronavirus infections. Spending is likely to fall even further as events and travel plans are canceled due to the virus.

But the build-up of extra savings could set the stage for a strong recovery once the current surge subsides. Consumers spending that accumulated cash could also push inflation higher. Some economists—including Richard Curtin, the chief economist of the University of Michigan’s survey of consumers—believe that consumers are likely to remain in a precautionary stance, holding back spending, even after the current surge fades.

Federal Reserve Chairman Jerome Powell said Friday morning at a virtual symposium hosted by the Kansas City Fed that he expects the recent surge in inflation to dissipate over time. He also confirmed that the Fed plans to begin reducing—or tapering, in the lingo of monetary policy—its bond purchases this year. At the same time, he stressed that this should not be seen as a tightening of monetary policy or a prelude to rate hikes.

Powell noted the tension between the tailwinds of strong consumer demand and business investment and headwinds of the rise in infections, noting that since the Fed’s last meeting in July, the economy has seen “more progress in the form of a strong employment report for July, but also the further spread of the Delta variant.”