The numbers: A key measure of US inflation rose a strong 1% in June, led by rising fuel prices, in a sign that price pressures on the economy remain intense and that little likely to yield quickly.
The rise in the so-called personal consumption price index exceeded Wall Street’s forecast. Economists had forecast an advance of 0.9%.
A narrower measure of inflation that omits volatile food and energy costs, known as core PCE, rose 0.6%. That was above Wall Street’s forecast of 0.5%.
The inflation rate over the past year rose to 6.8% from 6.3% the previous month, the highest rate since January 1982.
The core rate of inflation rose to 4.8% from 4.7% in the 12 months ended June. It had hit a 40-year high of 5.3% in February.
The Federal Reserve considers the PCE index to be the best barometer of inflation trends.
Overview: The economy is slowing in response to rising inflation, higher interest rates and the end of government pandemic relief. If it slows enough, the decline in demand should reverse rising prices and help reduce inflation.
However, the Fed’s new strategy of aggressively raising interest rates also threatens to plunge the economy into its second recession in three years, which could throw the US into another period of “stagflation “—the combination of high inflation and weak economic growth.
Key details: The overall increase in the PCE price index was spurred in part by higher oil and gas prices in June.
The good news? Oil prices fell sharply in July to provide some relief to consumers, although prices are still much higher compared to a year ago.
Meanwhile, core PCE suggests that inflation in some parts of the economy is softening, but it will take at least several months of progress to convince the Fed.
Unlike its better-known cousin, the consumer price index, the PCE gauge takes into account how consumers change their behavior in response to higher prices. They could substitute cheaper products like ground beef with more expensive ones like prime rib to keep their costs down, for example.
The CPI rose at an annual rate of 9.1% in June to mark the highest level in nearly 41 years.
Market reaction: The Dow Jones Industrial Average DJIA, +1.03% and the S&P 500 SPX, +1.21% were open higher in Friday trade.