The price index for American consumer spending, also known as the PCE index, rose at a rate of 4.2% in the year ended July, the fastest pace since January 1991.
Stripping out food and energy items, the prices of which tend to be more volatile, the inflation index stood at 3.6%, flat from the month before and remaining at its highest level since March 1991.
But Americans’ incomes rose as well in July, climbing more than expected — albeit still not as much as prices. Incomes rose by 1.1% last month, boosted by increased government benefits and higher wages. Benefits from child tax credit payments under the American Rescue Plan offset waning unemployment benefits as various states ended their pandemic jobless claims programs early.
It was the biggest jump in incomes since March, when the latest round of stimulus checks bolstered people’s wallets. The trend was the same for disposable incomes, which also rose 1.1%, the most since March.
Powell also said there’s “little evidence” of a wage-price spiral that would point to more worrisome inflation.
He reiterated that he believes the inflation spikes are likely only temporary side-effects from restarting the economy have the short but severe pandemic recession.
The Fed’s mandates are to keep prices stable and achieve maximum employment: with rising inflation and a recovering labor market, the central bank has signaled that the time may come soon to step on the brake pedal and let the economy continue the recovery on its own.
–Matt Egan contributed to this report.