A measure of inflation most closely watched by Federal Reserve officials picked up in April, reflecting the difficult path ahead for economic policymakers as they weigh whether to raise interest rates again to bring down stubborn price increases.
The Personal Consumption Expenditures index climbed 4.4 percent in April from a year earlier. That was a slight increase from March, when prices climbed 4.2 percent on an annual basis. Still, prices are not climbing as fast they were in February, when the index rose 5.1 percent on an annual basis.
A “core” measure that tries to gauge underlying inflation trends by stripping out volatile food and energy prices rose 4.7 percent in the year through April, up slightly from 4.6 percent in March.
The core measure rose 0.4 percent in April from the prior month, up from 0.3 percent in March. That was slightly faster than some analysts had been expecting. Core inflation had been rising at a faster pace earlier in the year, climbing 0.6 percent in January.
The data reflected the recent moderation in price gains compared with earlier months, but it also underscored how stubborn inflation has been. That could complicate the path ahead for Fed officials, who began raising interest rates last year to cool the economy and slow price growth.
The overall inflation numbers were heading in the “wrong direction for the Fed,” said Diane Swonk, the chief economist at KPMG, who added that the data underscored how price pressures were becoming more persistent. She said she expected Fed officials would have a “heated debate” over whether they should pause in June, which would in part depend on negotiations over raising the debt limit, but the latest inflation data made it harder to make that case.
The White House and Republicans are trying to reach an agreement to raise the borrowing cap ahead of June 1, when the United States could run out of cash to pay all of its bills on time. Failure to raise the debt limit in time to avoid defaulting on U.S. debt is likely to send the economy into a tailspin.
“If we can clear the debt ceiling, it opens the door for another hike in June,” Ms. Swonk said. She added that Fed officials could skip next month and leave rates unchanged, but she expected the central bank to raise rates again at least two more times later in the year.
Core services prices excluding housing costs, a measure that both the Fed and economists are watching closely, rose 0.42 percent, the biggest increase in three months, said Ian Shepherdson, the chief economist at Pantheon Macroeconomics. Policymakers are already expecting housing costs to cool later in the year, because real-time private sector data has recently shown a slowdown in rent increases.
“These data raise the risk that the Fed will hike again in June, though our base case remains that rates will be left on hold,” Mr. Shepherdson wrote in a note. If data on job growth, which is set to be released next Friday, showed a big increase in payroll gains, he said that would change his outlook.
The Fed raised interest rates by a quarter-point earlier this month, the 10th straight increase since last year. Policymakers have hinted that they could hold off on another increase at their next meeting on June 13-14. Minutes from the Fed’s last meeting showed that officials were split on their next move, with several leaning toward a pause.
“Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary,” the minutes said.
Still, central bank officials have so far kept the door open to another rate increase next month, reiterating that they would continue monitoring incoming data on inflation, the labor market and tightening credit conditions from recent bank failures.
One big wild card for the Fed is the brinkmanship over the debt ceiling. Policymakers discussed that possibility in May, according to minutes of that meeting, with many officials saying it was “essential that the debt limit be raised in a timely manner” to avoid the risk of severely damaging the economy and rattling financial markets.
Christopher Waller, a Federal Reserve governor, said in a speech on Wednesday that another rate increase in June could be warranted, but that it was too soon to tell.
“Whether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks,” Mr. Waller said.
Although Fed officials have noted that inflation has eased in recent months, they have called it “unacceptably high” and far from the central bank’s 2 percent goal.
They have also acknowledged some cooling in the labor market, as the number of job openings has fallen recently. But Fed officials have said labor market conditions are still too hot, pointing to solid monthly job gains, steady wage growth and an unemployment rate near historically low levels.
Policymakers have repeatedly said the labor market will need to soften to bring inflation back to a normal level. Officials acknowledge that wage gains did not initially cause the jump in price increases, but they worry that rapidly rising pay gains will make it more difficult to bring inflation under control.
“A loosening labor market, to help our fight against inflation, doesn’t have to mean a recession or big job losses,” Mr. Waller said. “But we do need to see more loosening than we have seen to help take the heat off the inflation rate.”