The numbers: A key measure of U.S. inflation edged up 1 percent in June, led by higher fuel prices, in a sign that price pressures in the economy are still strong and unlikely to ease quickly.
The increase in the so-called personal consumption price index exceeded Wall Street’s forecast. Economists had forecast growth of 0.9%.
A narrower gauge 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 rate of inflation over the past year rose to 6.8% from 6.3% in the previous month, the highest level since January 1982.
The core rate of inflation rose to 4.8% from 4.7% in the 12 months ended June. It hit a 40-year high of 5.3% in February.
The Federal Reserve views the PCE index as the best barometer of inflation trends.
Big picture: The economy is slowing in response to rising inflation, higher interest rates and the end of government aid for the pandemic. If it slows enough, falling demand should reverse price increases and help reduce inflation.
Yet the Fed’s new strategy of aggressively raising interest rates also threatens to plunge the economy into its second recession in three years, potentially plunging the US into a new period of “stagflation” — the combination of high inflation and weak economic growth.
Key details: The core increase in the PCE price index was driven in part by strong oil and gas prices in June.
The good news? Oil prices fell sharply in July to offer some relief to consumers, although prices are still much higher than a year ago.
Core PCE, meanwhile, suggests inflation is easing in some parts of the economy, 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 measure takes into account how consumers change their behavior in response to higher prices. They may substitute cheaper goods such as ground beef for more expensive ones such as fish to reduce costs, for example.
The consumer price index climbed to an annual rate of 9.1 percent 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 set to open higher in Friday trading.
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