The U.S. consumer spending price index, also known as the PCE index, rose at a rate of 4.2% in the year ended July, the fastest pace since January 1991.
Eliminating food and energy products, whose prices tend to be more volatile, the inflation rate stood at 3.6%, fixed on the previous month and remained at its highest level since March 1991.
But Americans ’incomes also rose in July, rising more than expected, though not as much as prices. Revenues rose 1.1% last month, driven by rising government profits and higher wages. The benefits of paying child tax credits under the American Rescue Plan offset the decline in unemployment benefits as several states ended their pandemic unemployment claims programs.
It was the biggest jump in revenue since March, when the last round of stimulus checks bolstered people’s portfolio. The trend was the same for disposable incomes, which also rose 1.1%, the most since March.
Powell also said there is “little evidence” of a wage price spiral that would point to more worrying inflation.
He reiterated that he believes that inflation rises are likely to be only temporary side effects of the recovery of the economy with the short but severe pandemic recession.
The Fed’s mandates are to keep prices stable and get maximum employment: with rising inflation and the recovery of the labor market, the central bank has noted that the time may come to step on the brake pedal and let the economy continues to recover on its own.
–Matt Egan contributed to this report.