A key inflation indicator rose 3.5 percent in June from a year ago — its biggest year-over-year jump in 30 years — as costs continued to grow in the US economy just as it’s mounting a comeback from the pandemic, the feds said Friday.
It is the most since July 1991 that the Commerce Department’s core personal consumption expenditures index has risen over a 12-month period, but still came in lower than expected as concerns remain heightened over inflation throughout the economy.
Economists surveyed by Dow Jones expected to see the so-called core PCE index, which excludes food and energy costs, increase 3.6 percent.
The core index rose 0.4 percent from May, slower than the 0.5 percent increase seen from April to May and below the 0.6 percent increase expected by economists surveyed by Dow Jones, the Commerce Department reported.
The index tracks prices across a variety of goods and services and is considered a broader measure for inflation than the Labor Department’s Consumer Price Index, which rose 5.4 percent in June from a year ago.
Including food and energy, which are more volatile than other goods, the Commerce Department’s index jumped 4 percent from a year ago, its largest year-over-year jump since July 2008.
Federal Reserve officials consider the core PCE index to be among the best gauges for inflation, though they watch various statistics.
One driver of the massive year-over-year gain is very low inflation this time last year, when the pandemic gutted the economy and consumers were staying indoors and spending less. That could distort year-over-year comparison as the economy reopens.
Those comparisons aside, prices are spiking throughout the economy for a variety of reasons. Most of the inflation increase in May came from energy, with prices spiking 27.4 percent compared with just a 0.4 percent rise in food costs, according to the data released Thursday.
Prices are also rising throughout the economy due to a global microchip shortage that’s hurt car manufacturing and has sent the prices of used cars soaring.
Commodities from lumber to corn and other crops have risen dramatically, though some of those prices have crested and begun to fall again in recent weeks. A labor shortage that’s preventing many businesses from fully reopening and meeting demand is also driving up some costs.
Many companies have chosen in recent weeks to pass those rising costs on to consumers, sending prices for new houses, food — and more — upward.
For now, the jump in prices appears to reflect rapidly strengthening consumer demand as Americans venture out of their homes after a year of social distancing and pandemic-related restrictions.
But the rise in costs is also fueling a debate among economists over whether the inflation bout will be only temporary as the economy reopens, or whether massive federal spending will drive costs higher for years to come.