**”US Inflation Surges in April, Marking Biggest Increase in Over a Year”**
Lucia Mutikani, reporting from Washington for Reuters, states that U.S. inflation saw a significant uptick in December, the largest rise in eight months, driven by a surge in consumer spending. This development indicates that the Federal Reserve is likely to proceed cautiously with interest rate cuts in the near future.
Additional data released on Friday revealed a growth in labor costs in the fourth quarter, accompanied by a slight increase in wages. Inflationary pressures increased during the same period, halting the progress made in lowering inflation rates.
The Federal Reserve opted to keep interest rates unchanged in its recent meeting, marking the first time since the initiation of its policy easing cycle in September. The decision did not mention progress towards reaching the Fed’s 2% inflation target in its policy statement.
Chief economist Carl Weinberg from High Frequency Economics commented that the Fed’s approach involves a slower pace of monetary easing, given the robust economy and the gradual return of prices to the target amidst prevailing uncertainties.
The Personal Consumption Expenditures (PCE) Price Index rose by 0.3% in December, the most significant increase since April of the previous year. This aligns with economists’ expectations. Over the 12 months leading to December, the PCE price index rose by 2.6%, the largest gain in seven months.
This data was part of the advance gross domestic product report for the fourth quarter, published on Thursday. The Fed uses the PCE price index as a key indicator for monetary policy decisions. Since September, the Fed has reduced its benchmark overnight interest rate by 100 basis points, settling it in the 4.25%-4.50% range.
The central bank’s projections suggest only two rate cuts for the year, down from the four initially anticipated in September. This revision reflects uncertainties surrounding the potential impact of policy measures proposed by President Donald Trump, including tax cuts, tariffs on imports, and immigration policies that could spur inflation.
No rate cuts are expected until at least June. The core inflation, excluding food and energy components, increased by 0.2% last month, following a 0.1% rise in November. Year-over-year, core inflation saw a growth of 2.8%, matching the November increase.
Following these developments, U.S. stocks opened higher, the dollar strengthened against various currencies, and U.S. Treasury prices remained stable.
In the latest statistics, it was revealed that the employment cost index (ECI), which is considered the most comprehensive measure of labor costs, saw a 0.9% increase in the fourth quarter following a 0.8% rise in the preceding quarter. Prior to this, economists had predicted that the ECI would climb by 0.9%. Over the course of the 12 months leading up to December, labor costs went up by 3.8% after experiencing a 3.9% increase in the 12 months ending in September. Policymakers often regard the ECI as a reliable gauge of labor market slack and as a tool for forecasting core inflation due to its adjustments for changes in job composition and quality.
Wages and salaries, which represent a significant portion of labor costs, showed a 0.9% increase in the last quarter, compared to a 0.8% uptick in the quarter before. On an annual basis, they rose by 3.8%, which marks a deceleration from the 3.9% growth observed in the previous quarter. When adjusted for inflation, overall wages saw a 0.9% uptick in the 12 months through December, down from a 1.4% increase in the July-September period. This rise in real income is supporting consumer spending.
Breaking it down further, private sector wages and salaries saw a 0.9% increase, with an annual growth rate of 3.7% over the 12 months leading up to December, slightly lower than the 3.8% rise seen in the third quarter. In comparison, state and local government wages saw a 1.0% increase in the last quarter, matching the gain in the prior quarter, and rose by 4.5% over the 12 months until December.
Furthermore, benefits for all workers also increased by 0.8%, the same as in the third quarter, and showed a 3.6% rise in the 12 months ending in December, down from a 3.7% increase in the July-September period. This information was reported by Lucia Mutikani and edited by Chizu Nomiyama and Paul Simao.
