Trend reversal started a year ago. Services inflation stuck at high rate for a year. Now prices of food, energy, computers & software (inflationary AI boom), and gold jewelry (gold price spike) all surged.

By Wolf Richter for WOLF STREET.

The all-items PCE price index jumped by 0.40% in April from March (+4.9% annualized), on top of the 0.66% spike (8.3% annualized) in the prior month, which had been the worst spike since mid-2022 (blue line in the chart below). Year-over-year, the PCE price index jumped by 3.8%, the worst since May 2023 (red line).

This all-items PCE price index is the yardstick the Fed favors for its 2% inflation target (dotted purple line). And at 3.8%, it is now nearly double the target of 2%, and has been moving away from it since May 2025, with big month-to-month price surges in December, January, and February, before the war and before the energy price spike. The energy price spike came on top of it in March and April.

Food prices have begun to surge. The AI boom is driving up prices of semiconductors, and thereby of computers. Software subscription prices are surging because providers (Microsoft, Alphabet, et al.) have increased their prices after including AI into the package. So far, AI has been inflationary. And services inflation has been stuck at a high rate for an entire year without any improvement.

The core PCE price index, which excludes energy and food, rose by 0.24% in April from March, or +2.9% annualized, after four months in a row of 3.6% to 5.2% annualized increases (blue in the chart below).

The year-over-year core PCE price index rose by 3.3%, the worst since November 2023 (red in the chart).

The Fed’s target for this core PCE inflation measure is 2.0% (dotted purple line). And being a “core” measure, it does not include the gasoline price spike and the now surging food prices.

Core PCE inflation never even got close to the Fed’s 2% target, but bottomed out at 2.6% in April 2025 and has been moving away from the target ever since. It has been above target for over five years as well.

The energy PCE price index jumped by 3.9% in April from March on top of the historic 11.6% spike in the prior month.

This pushed the year-over-year increase to +18.3%, up from a negative reading in February.

The US is the largest crude oil and petroleum products producer in the world, a large exporter of crude oil and petroleum products, including gasoline and diesel, and gets very little crude oil from the Strait of Hormuz and doesn’t need any of it. Gasoline prices started spiking in March though the gas in the tanks at gas stations or at refineries or in transit had been purchased earlier at the low prices that had prevailed at the time, and that price spike went straight to profit margins of gasoline retailers, refiners, and oil companies, at the expense of consumers. This is what inflation is all about: companies jack up prices because they can (“pricing power”).

Food prices jumped by 0.49% in April from March (+6.0% annualized).

This pushed the year-over-year increase to +2.5%, the worst increase since September 2023 (red). My charts for prices of beef, chicken, eggs, coffee, dairy, fruit & veggies, and other foods are here.

Core services, which account for about 60% of the PCE price index, rose by 0.22% in April from March (+2.7% annualized).

Year-over-year, it rose by 3.5% and has been in this range for an entire year without any improvement.

Core services are where inflation has been consistently high for the past year, after coming down from the surge in 2021 through early 2023. To give a historic perspective on this level of services inflation, here is the 60-year chart.

Durable goods prices jumped month to month by 0.58% (+7.2% annualized), driven by massive spikes in prices of:

• Computers and software (+3.7% month to month not annualized) due to the spike in chip prices and software subscriptions, thank you inflationary AI boom;
• Jewelry prices (+3.7% month to month not annualized) as the earlier price spike of gold gets passed on step by step.

Many major categories had month-to-month declines, were unchanged, or had only small increases: Motor vehicles & parts (-0.1%); Sporting equipment, supplies, guns, ammo (-0.4%); Furniture and Furnishings (-0.3%); recreational books (-2.9%, dropped to 2019 price level); Appliances (unchanged); Motorcycles (unchanged); Phone & related communication equipment (+0.2% but -13% year-over-year).

Year-over-year, the PCE price index for durable goods rose by 3.4%, the worst since October 2022, having accelerated now for two years.

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