Friday, May 26, 2006

Inflation Rises Above Fed Comfort Zone

The AP reports:
Consumer spending grew in April at the fastest pace in three months, supported by solid income growth. But in a worrisome development, a key gauge of inflation watched by the Federal Reserve posted the biggest increase in 13 months.

The Commerce Department reported Friday that consumer spending jumped 0.6 percent last month, the best showing since a 0.8 percent rise in January, while incomes rose by 0.5 percent, supported by strong wage and salary gains.



However, core inflation, excluding energy and food, was up 2.1 percent in April compared to the same month a year ago. This was the fastest increase in this inflation gauge since a similar 2.1 percent increase for the 12 months ending in March 2005 and was above the Fed's comfort zone for inflation.
Rates at the long end of the curve are probably going higher with or without increases in the Fed Funds target rate.