A key US inflation gauge accelerated again in June, outpacing income gains, government data showed on Friday, increasing pressure on President Joe Biden and policymakers trying to ease the pain for American families.
The data, showing the biggest spike in inflation in four decades, follows dismal economic growth numbers and another outsized rate hike by the Federal Reserve.
The Fed’s preferred measure of inflation, the personal consumption expenditure (PCE) price index, rose 6.8 percent compared to June 2021, the Commerce Department reported.
And inflation rose 1.0 percent from May, in line with economists’ expectations but outpacing personal income, which rose just 0.6 percent, the same increase as the previous month, according to the report.
Consumers, buoyed by a stash of savings during the pandemic, have splurged on goods, cars and homes over the past year, but the snarl of global supply chains and labor shortages have pushed prices higher — factors exacerbated by Russia’s war against Ukraine were exacerbated, sending food and energy prices skyrocketing around the world.
Excluding the volatile food and energy components, the “core” PCE price index gained a more moderate 4.8 percent over the trailing 12 months, just a tenth higher than in May but continuing a gradual deceleration.
The Fed focuses on the PCE price index because it reflects actual consumer spending, including shifts to lower-cost items, in contrast to the better-known consumer price index, which rose 9.1 percent in June.
The PCE also gives less weight to things like rent, vehicles and airfare, which have contributed to the rapid pace of CPI rises
The Fed has aggressively raised lending rates this year, with the fourth hike announced on Wednesday in a bid to cool the economy.
Central bankers face a difficult task of easing the price pressures weighing on US budgets without triggering a severe economic downturn.
One concern is that demands for higher wages amid labor shortages could trigger a wage-price spiral.
In a separate data report, the Labor Department said workers’ compensation, including wages and benefits, rose 1.3 percent in the three months ended June and 5.1 percent in the trailing 12 months.
Oxford Economics’ Nancy Vanden Houten said the better-than-expected earnings did not provide compelling evidence of a slowdown in inflation, which the central bank is aiming for.
“Q2 job cost data provides no evidence that wage growth is slowing and leaves the Fed on track to raise interest rates by another 75 basis points at its September meeting,” she said.
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