Key U.S. inflation gauge surges in July as Fed chief reiterates high inflation "temporary"

Source: Xinhua| 2021-08-28 04:55:20|Editor: huaxia

WASHINGTON, Aug. 27 (Xinhua) -- A key U.S. inflation measure closely watched by the Federal Reserve continued to surge in July, the U.S. Commerce Department reported on Friday, as Fed Chair Jerome Powell reiterated high inflation is likely to be temporary.

The so-called core personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, jumped 3.6 percent in July from a year ago, the largest 12-month increase in 30 years, according to the latest data.

Including volatile food and energy prices, the headline PCE price index rose 4.2 percent from a year earlier, well above the Fed's inflation target of 2 percent.

The latest official figures also showed that PCE price index climbed 0.4 percent in July from the previous month, with core PCE price index, which includes food and energy, rising by 0.3 percent.

PCE, meanwhile, increased by 0.3 percent in July from the prior month, with both personal income and disposal personal income growing by 1.1 percent, the report showed.

Tim Quinlan and Shannon Seery, economists at Wells Fargo Securities, noted in an analysis that despite another "pullback" in goods outlays, overall consumer spending grew 0.3 percent in July "thanks to larger gains on the services side."

"But inflation grew even faster, as evidenced by the 0.4 percent monthly increase in the PCE deflator," they noted.

In a speech during the Federal Reserve Bank of Kansas City's annual Jackson Hole economic symposium on Friday, Federal Reserve Chair Jerome Powell said inflation at current levels is a cause for concern, but that concern is tempered by a number of factors that suggest that these elevated readings are likely to prove "temporary."

Such factors are: the absence so far of broad-based inflation pressures, moderating inflation in higher-inflation items, little evidence of wage increases that might threaten excessive inflation, longer-term inflation expectations at levels broadly consistent with the Fed's 2-percent objective, as well as the prevalence of global disinflationary forces over the past quarter century.

"Incoming data should provide more evidence that some of the supply-demand imbalances are improving, and more evidence of a continued moderation in inflation, particularly in goods and services prices that have been most affected by the pandemic," Powell said.

The central bank has pledged to keep its benchmark interest rate unchanged at the record-low level of near zero, while continuing its asset purchase program at least at the current pace of 120 billion U.S. dollars per month until "substantial further progress" has been made on employment and inflation.

Powell said his view is that the substantial further progress test has been met for inflation, and there has been "clear progress" toward maximum employment.

He noted that it "could be appropriate" for the central bank to start tapering asset purchases this year, while stressing that a move to start tapering asset purchases should not be interpreted as a sign that rate hikes would soon follow.

Adam Posen, president of the Washington-based think tank Peterson Institute for International Economics, said in a media call earlier this week that he views the central bank as "quite likely" to taper between now and the end of the year "irrespective of Delta (variant)," adding that he thinks it will start the move "more towards the end of the year."

Noting that the specific timing doesn't really matter very much, he said the core members of the Federal Open Market Committee (FOMC), the Fed's policymaking body, believe that the tapering is really about "political signaling" and not really about tightening on the economy.

Posen added he doesn't think the Fed controls how high inflation will be in 2022, as "there are lags and there's already stuff baked in," but it can control inflation in 2023 and 2024.

"As a forecast, I think they are very likely to aggressively raise rates after the November 2022 elections and then will start talking about that ahead," he said. Enditem

KEY WORDS: US,Inflation,PCE,ROUNDUP
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