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Economic Report: U.S. inflation hasn’t been this high since 2008

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The numbers: A key barometer of inflation rose again in April and hit a 13-year high, reflecting a broad surge in consumer prices as the U.S. fully reopens for business after the coronavirus pandemic and massive government financial aid sloshes through the economy.

The headline consumption expenditure inflation measure climbed 3.6% in April from the prior year, the strongest reading since 2008, and higher than the 2% preferred by the Federal Reserve.

The core price index, which strip out volatile food and fuel prices, rose 3.1 percent in the year through April, the fastest pace since 1992.

For the month the so-called PCE index jumped 0.7% in April, marking the biggest monthly increase since 2008 and also quicker than the expected 0.6%.

Rising inflation has spooked some on Wall Street and made Americans gnash their teeth when confronting higher prices for goods and services ranging from hamburgers and plywood to used cars and vacation rentals. It’s been a long time since they’ve experienced such a sharp upturn in prices in so short a time.

Read: Why aren’t Americans happier about the economy? They are paying higher prices for almost everything

Big picture: A debate is being waged on Wall Street and Washington: Is higher inflation here to stay?

Most economists say no. Much of the increase in prices lately is tied to the reopening economy as well as huge dollops of federal stimulus aid. Americans have money to spend and they are eager to spend it on the things they couldn’t do or buy during the pandemic. That’s driving up prices.

Adding to the problem are ongoing shortages of key materials and supplies because of disruptions caused by the pandemic. That’s also causing prices to surge.

The Federal Reserve insists inflation will fade to its 2% target by next year once the economy is on firmer footing and the pandemic is in the rearview mirror.

So what’s the worry?

Some contend that if prices rise high enough for long enough that Americans will come to expect more inflation. That could cause erode worker wages, force the Fed to raise interest rates sooner than it plans and potentially short-circuit the economy.

In Washington, Republicans have accused the Biden administration of driving up inflation with its big spending programs. The president on Thursday insisted the price increases are temporary and said his administration would take steps to help ease supply shortages.

Stay tuned. The debate is going take months if not years to play out.

Key details: The rate of inflation as measured by the PCE was fairly weak during the pandemic, with the yearly rate falling at one point to a five-year low of less than 0.5%.

Yet inflation began to rise again toward the end of last year and price increases accelerated in early 2021. They are likely to remain elevated at least through the end of the year.

The measure of inflation that strips out food and energy, meanwhile, also rose by 0.7% last month. The change in the so-called core rate increased to a yearly pace of 3.1% in April from 1.9% in March, marking the highest level since 1992.

Read: The U.S. economy has suffered a few missteps. Just how bad is it?

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.22%

and S&P 500
SPX,
+0.20%

rose in Friday trades as investors shrugged off the increase in inflation.

Economic Report: U.S. trade deficit in goods narrows in April from record in prior month

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