Inflation Remains Near Fed Target
Inflation is in the headlines again after the April Consumer Price Index (CPI) accelerated, while the Producer Price Index (PPI) fell versus March readings. Headline CPI, which measures the prices that consumers pay for goods and services, hit 2.5%, whereas the core reading, which removes the impact of food and energy prices, was the same as the March reading at 2.1%. PPI, which measures the wholesale selling prices received by producers*, decelerated to 2.6% and 2.3% for the headline and core figures, respectively.
All three major measures of inflation are near or slightly above the Federal Reserve’s (Fed) 2% target, as our LPL Financial Chart of the Day shows. (April data for personal consumption expenditures (PCE) inflation will be released on May 31.) LPL Research Chief Investment Strategist John Lynch explains, “It’s taken us almost a decade to get here, but inflation is finally near the Fed’s 2% target. We expect that the Fed will continue on its path of gradual rate hikes, and that we’d need to see core PCE or wage inflation move significantly higher before the Fed would become more aggressive and upset the balance that they’ve worked so hard to achieve.”
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.
Personal consumption expenditures (PCE) is a measure of price changes in consumer goods and services. Personal consumption expenditures consist of the actual and imputed expenditures of households; the measure includes data pertaining to durables, nondurables, and services. It is essentially a measure of goods and services targeted toward individuals and consumed by individuals.
* Sellers’ and purchasers’ prices may differ due to government subsidies, sales and excise taxes, and distribution costs.
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