As the Federal Reserve works to balance the dual challenges of rising prices and a contracting economy, a crucial indicator of inflation in the United States has increased once more, reaching a new four-decade high.
The personal consumption expenditures (PCE) price index increased by 6.8% in the year ending in June, which is higher than the previous high of 6.3 percent recorded in May and the highest increase since January 1982.
The PCE measure is a substitute for the more well-known consumer price index, which increased 9.1 percent in June from a year earlier and is chosen by the Federal Reserve due to its adjustable 2 percent target rate.
Both indicators employ different approaches to determine how much prices have increased for the typical consumer and are issued on a monthly basis.
The PCE price index increased 0.6 percent from the previous month after increasing 0.3 percent in May, which is another indication that inflation is on the rise.
After climbing 4.7 percent in May, the so-called core PCE price index grew 4.8 percent on an annual basis in June.
Consumer spending, which makes up more than two thirds of US economic activity, increased by 1.1 percent from May to June, more than forecast, according to the Commerce Department’s report on Friday.
Although the increase in consumer spending was ostensibly favorable for the economy, the research showed that almost all of the gain was caused by inflation.
Consumer expenditure only increased by 0.1 percent from May to June after accounting for inflation.
Even so, it represented an improvement over May’s -0.3% inflation-adjusted decline.
The most recent report comes after a week of unsettling economic news, which has put the Federal Reserve in a difficult position as it considers monetary policy.
In an effort to combat inflation, the Fed has been rapidly hiking its benchmark interest rate.
On Wednesday, it added another enormous 0.75 point rate boost.
But as fresh statistics on Thursday revealed the US economy shrank for the second consecutive quarter, the central bank is faced with difficult decisions about whether to keep hiking rates.
The Fed’s primary weapon in the fight against inflation is higher interest rates.
However, increasing the cost of borrowing money also deters individuals and firms from taking out loans, which reduces spending and restrains economic growth.
It comes in the wake of depressing economic news that sparked heated discussion this week about whether the US has experienced a recession.
Following a fall of 1.6 percent in the first quarter, the Commerce Department said on Thursday that the US gross domestic product fell by 0.9 percent in the second quarter.
The informal and traditional definition of a recession is two consecutive quarters of declining GDP, but the Biden administration is adamant that the US economy does not meet this criteria.
Despite the downturn, President Joe Biden emphasized that the US economy is “on the right path” and praised the robust labor market.
In remarks delivered at the White House, he said, “That doesn’t sound like a recession to me.”
True, the majority of economists are hesitant to declare the current state a recession just yet.
The unemployment rate is still close to its five-decade low of 3.6 percent, and recent months have seen a sharp increase in job growth.
In the history of the US, there has never been a recession that was not followed by a sharp rise in the unemployment rate.
However, the economy is in trouble, as seen by the second consecutive quarter of negative growth.
In a message to DailyMail.com, S&P Global Ratings U.S. Chief Economist Beth Ann Bovino noted that “seven of the nine leading indicators we studied in June generated negative or neutral signals, signaling further worsening of economic conditions and likely recession.”
Other than the United States, the entire world economy is struggling with rising inflation and declining growth, particularly in the wake of Russia’s invasion of Ukraine, which caused energy and food prices to spike.
Given its reliance on Russian natural gas, Europe seems particularly susceptible to a downturn.
World trade and supply lines have been impacted by China’s ongoing COVID-19 lockdowns.
Consumer confidence has been undermined and public anxiety about the economy has been stoked in the United States as a result of the price increase and fear of a recession, which is producing frustratingly contradictory signals.
Americans’ dissatisfaction with the economy has decreased Biden’s support ratings as the November midterm elections draw closer and may make it more likely that the Democrats would lose control of the House and Senate.