Surging prices: Key inflation metric just hit a 29-year high

New York (CNN Business)Inflation seems unstoppable as the economy returns to normal.

People are spending big again, with battered industries like travel and hospitality coming back to life. That has sent prices surging.

A key measure of inflation, after stripping out more volatile food and energy prices, jumped to a 29-year high in April. The Bureau of Economic Analysis' price index tracking US consumer spending rose 3.6% in the year ending April, its biggest jump since September 2008 -- the height of the financial crisis. Excluding food and energy prices, the index gained 3.1%, the biggest increase since July 1992.

Inflation has been the boogeyman overshadowing the recovery.

Some economists are concerned that extreme price increases could keep consumers from spending, and investors worry that a prolonged inflation spike could force the end of the Federal Reserve's easy money policies.

Price increases are showing no signs of letting up. The University of Michigan's May consumer sentiment survey found that "record proportions of consumers reported higher prices across a wide range of discretionary purchases, including homes, vehicles, and household durables," according to the survey's chief economist, Richard Curtin.

The consumer sentiment index dipped slightly in May but was in line with expectations.

But while further price increases are likely, steep price drops during the worst of the pandemic last spring make for a tough comparison. In the coming months, the year-over-year price comparisons will come more into parity, helping inflation look less dramatic.

That's why the Fed has said inflation will be temporary.

"We expect most Fed officials to stick to the line that inflation pressures are expected to be 'transitory' or 'transient'," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

There's likely little wiggle room to the Fed's line of reasoning unless core inflation pressures stay or wage inflation starts going up.

While prices rose, American incomes took a nosedive in April.

That wasn't too surprising because the effect of the last round of stimulus checks has waned. But even with a whopping 13.1% drop, incomes actually declined less than economists had predicted. In March, incomes rose more than 20%.

Along with incomes, the savings rate also fell in April, dropping to 14.9% from nearly 28% in the month before.

Friday's BEA report really hammered home that economic data in the recovery will be bumpy, said Lydia Boussour, lead US economist at Oxford Economics.