Key Inflation Gauge Posts Fastest Annual Price Gain In 30 Years

Customers shop for produce at a supermarket in Chicago, Ill., on June 10, 2021. Scott Olson/Getty Images

Consumer prices, excluding the volatile food and energy components, soared well beyond the Federal Reserve’s 2 percent target in the year to June, reaching levels not seen since 1991 and reinforcing concerns about inflation.

The so-called core personal consumption expenditures (PCE) price index, which excludes food and energy and is the Fed’s preferred method for gauging inflation, rose 3.5 percent in the 12 months to June, after rising 3.4 percent in the year to May, the Commerce Department said on Friday. The last time the core PCE inflation gauge saw a similar year-over-year vault was in July 1991.

The Fed looks to core PCE as the key inflation gauge that informs its monetary policy, which has an inflation target of a longer-run average of 2 percent.

While some economists have raised the alarm on inflation, Fed officials and members of the Biden administration have insisted that price rises are temporary, arguing that inflationary pressures will ease as pandemic-related supply chain disruptions are ironed out.

The Federal Reserve Board Building on Constitution Avenue in Washington, D.C., on March 27, 2019. Brendan McDermid/Reuters

Fed Chairman Jerome Powell told reporters on July 28 (pdf) that  it’s possible inflation could run hotter and for longer than Fed analysts expect.

“The process of reopening the economy is unprecedented, as was the shutdown at the onset of the pandemic,” Powell said. “As the reopening continues, bottlenecks, hiring difficulties, and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect.”

But Powell reiterated his oft-repeated view that, in the next year or so, inflation will return closer to the central bank’s target of 2 percent.

“If we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal, we’d be prepared to adjust the stance of policy,” he said.

On July 28, the Fed kept its overnight benchmark interest rate near zero and left its massive asset purchase program unchanged, with Powell saying at the press conference that the U.S. economy is still a ways away from making “substantial further progress” towards the Fed’s dual mandate of price stability and maximum employment.

Federal Reserve Board chairman Jerome Powell testifies on the Federal Reserve's response to the coronavirus pandemic during a hearing on Capitol Hill in Washington, on June 22, 2021. Graeme Jennings/Pool via AP

Economists and investors have widely shifted their spectrum of concerns from slow growth, high unemployment, and deflationary pressures at the beginning of 2021, to inflation.

“You can’t speak to anyone in the investment field without having the fear of inflation come to the forefront,” said Robert R. Johnson, Professor of Finance, Heider College of Business, Creighton University, in an emailed statement to The Epoch Times.

Some economists have expressed concerns that if prices accelerate too fast and stay high for too long, expectations of further price increases will take hold, driving up demand for wages and potentially triggering the kind of wage-price spiral that plagued the economy in the 1970s.

Meanwhile, more than 80 percent of Americans are concerned about inflation, according to a survey by Skynova, which also indicated that 61 percent feel inflation will negatively impact their lifestyles.