Inflation rose 0.4% in April and 4.7% from a year ago, according to key gauge for the Fed

Inflation stayed stubbornly high in April, potentially reinforcing the chances that interest rates could stay higher for longer, according to a gauge released Friday that the Federal Reserve follows closely.

The personal consumption expenditures price index, which measures a variety of goods and services and adjusts for changes in consumer behavior, rose 0.4% for the month excluding food and energy costs, higher than the 0.3% Dow Jones estimate.

On an annual basis, the gauge increased 4.7%, 0.1 percentage point higher than expected, the Commerce Department reported.

Including food and energy, headline PCE also rose 0.4% and was up 4.4% from a year ago, higher than the 4.2% rate in March.

Despite the higher inflation rate, consumer spending held up well as personal income increased.

The report showed that spending jumped 0.8% for the month, while personal income accelerated 0.4%. Both numbers were expected to increase 0.4%.

Price increases were spread almost evenly, with goods rising 0.3% and services up 0.4%. Food prices fell less than 0.1% while energy prices increased 0.7%. On an annual basis, goods prices increased 2.1% and services rose by 5.5%, a further indication that the U.S. was tilting back towards a services-focused economy.

Food prices rose 6.9% from a year ago while energy fell 6.3%.

The report comes just a few weeks ahead of the Fed’s policy meeting June 13-14.

The Fed targets annual inflation around 2%, meaning that the current levels remain well above the goal and leading to the likelihood that the aggressive moves the central bank has made over the last year or so could remain intact.

One way the Fed’s rate hikes are supposed to work is by bringing down demand. The April spending numbers, however, shows that consumers have continued spending in the face of both higher rates and strong inflation, meaning policymakers may have more to do.

Immediately following the report, market pricing swung to a 57% chance that the Fed will enact another quarter percentage point interest rate hike at the June meeting. There are only two key data points before then, with the May nonfarm payrolls report due next Friday and the consumer price index out June 13.

This is breaking news. Please check back here for updates.

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