US personal incomes fall sharply in April, inflation picks up

Personal income growth in the States slowed sharply last month, but only on account of comparison with the previous month, when the Biden administration's mammoth $1.9trn American Rescue Plan Act kicked into effect.

Price pressures meanwhile increased a bit faster than anticipated.

According to the Department of Commerce, US personal incomes dropped in April at a month-on-month pace of 13.1% (consensus: -15.0%).

Personal consumption expenditures on the other hand rose by 0.5% versus March (consensus: 0.4%).

Inflation as measured by the PCE price deflator picked up from an annual gain of 2.4% for March to 3.6% in April (consensus: 3.5%).

At the core level, the annual rate of increase for PCE prices accelerated from 1.9% to 3.1% (consensus: 2.9%).

In parallel, the personal saving rate dropped from 27.7% to 14.9%.

Commenting on the potential implications of the latest inflation figures, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "Pending incoming information on the state of the labor market over the next few months, we expect most Fed officials - and especially the governors - to stick to the line that inflation pressures are expected to be “transitory” or “transient”, due to “bottlenecks”.

"That line won’t change unless convincing evidence emerges of a sustained increase in core inflation expectations and, especially, sustained upwards pressures on wage growth. That likely won’t become clear, either way, until the fall."