The main indicator of inflation in the United States grew by only 0.2% in April, this was the lowest level over the past year and a half. The rise in the so-called personal consumption price index, or PCE, was the lowest since November 2020. Last year’s PCE-based inflation rate hit a 40-year record in March, dropping to 6.3% in April for the first time in a year and a half.

At the same time, the benchmark PCE, an index that does not account for volatile energy and food costs, showed some stability, adding 0.3% for the third straight month.

“We need monthly hikes to be more meaningful before the Fed can breathe,” said Jennifer Lee, senior economist at BMO Capital Markets.

By TradingView

It is the RCE index, and its basic indicator that the Fed considers the most accurate determinant of inflation in the United States. It is broad and takes into account when consumers replace expensive goods with cheaper ones. The better-known CPI added 8.3% over the past year. High inflation like this is a concern for most U.S. traders as they face it for the first time.

The Fed is moving to quickly raise the key short-term interest rate, which it has held near zero for much of the pandemic, to try to suppress inflation.

The Fed’s rate hikes to stifle inflation are driving up interest rates on auto loans, mortgages and business loans, and are likely to slow the economy, though Fed officials argue that the decline in inflation will occur without a recession in the economy. Whether inflation can be overcome soon, this question remains open.

The Ukrainian war caused oil prices to rise, while restrictions in China disrupted supply chains, slowing the economy of the largest country. Collectively, these 2 key factors caused the most powerful inflation in decades.

The pace of core PCE inflation slowed from 5.2% to 4.9% last year and declined for the second straight month. The last time such a decline was the first few months after the 2020 pandemic.

“The economy can always pick up, but at this point in the economic cycle, consumers are still spending all their energy curbing recessionary winds,” observed Christopher Rupkey, chief economist at FWDBONDS in New York.