Two separate government agencies calculate inflation using their own methods. The Federal Reserve prefers the PCE (the Commerce Department’s personal-consumption expenditures price index) over the BLS’s CPI (Consumer Price Index).
**Inflation Hits Fresh Four-Decade High, According to Fed’s Preferred Measure**
**Consumer prices jumped in June, pushed up in part by high energy prices**
**By Gwynn Guilford, The Wall Street Journal, July 29, 2022**
**Inflation accelerated in June, measured by the Federal Reserve’s preferred gauge, driven by a jump in energy prices as well as broader-based increases.**
**Consumer prices rose 6.8% in June from a year earlier, up from 6.3% in May and April, as measured by the Commerce Department’s personal-consumption expenditures price index. The gain in June marked the sharpest rise since January 1982.**
**The so-called core PCE index, which excludes volatile food and energy prices, increased 4.8% in June from a year ago, up from 4.7% in May. On a monthly basis, core prices rose a seasonally adjusted 0.6% in June from a month earlier, a sharp pickup from the 0.3% increase in each of the prior four months....** [end quote]
The Fed’s increases in the fed funds rate will be very slow to change the inflation rate. It takes a long time for changes in the overnight interest rate charged to banks to work their way into daily spending by consumers.
M1, which is the liquid money supply that can be spent right away, suddenly stopped growing and actually had a slight drop. But consumer loans are still growing fast.
As long as the growth of demand is faster than the growth of supply (of goods and services), consumer prices will rise.
And the Fed will continue tightening to gradually reduce demand even if a recession results.