Price Shock: Inflation Soars to 29-Year High

A key measure of inflation accelerated to a faster-than-expected 3.1 percent annual gain in April, the Commerce Department reported Friday.

The last time the core personal consumption expenditures index hit 3.1 percent was in May of 1992, when George H. W. Bush was president and inflation was still recovering from the stagflationary 1970s era.

Federal Reserve officials consider core PCE inflation, which excludes food and energy, to be their primary gauge of price stability, one-half of the central’s bank’s core aims in formulating monetary policy. The other half is maximizing employment.

Prices of many items fell last year as the pandemic struck and lockdowns were implemented in an effort to contain the spread of the virus. As a result, year-over-year measures of inflation are expected to be very high over the next few months, reflecting what economists call a “base effect.”

But April’s record inflation is not entirely a base effect. The month-over-month core PCE inflation, at 0.7 percent, is the highest since October 2001. In fact, monthly inflation has only climbed above 0.4 percent in one month since then, in January of 2007.

On Friday, the University of Michigan’s consumer sentiment survey revealed that near-term and long-term inflation expectations were at the highest level in a decade. On Thursday, the Kansas City Fed said inflation reported by manufacturers in its region were at the highest levels ever recorded. The Richmond Fed’s survey of manufacturers also revealed record high inflation in May.  Last week, the Philadelphia Fed also reported record high price increases.

The broader PCE index jumped 0.6 percent in April, the biggest monthly increase since 2008. The 12-month rate of inflation also jumped to a 13-year high of 3.6 percent in April from 2.4 percent in March.