Inflation figures closely watched by the Federal Reserve showed a persistent rise in February. The core personal consumption expenditures (PCE) price index, which excludes volatile food and energy categories, increased by 0.4% during the month.
On an annual basis, this core inflation measure registered at 2.8%. This year-over-year figure slightly exceeded the expectations of economists surveyed by Dow Jones, who had anticipated a 2.7% rise.
The PCE index is a critical inflation gauge for the U.S. central bank. It differs from the more commonly cited consumer price index (CPI) by accounting for shifts in consumer purchasing behavior and assigning less weight to housing costs, thus providing a broader perspective on price trends.
Including food and energy prices, the headline PCE index saw a monthly increase of 0.3% and an annual rise of 2.5%. Both of these figures were in line with market forecasts.
Consumer Spending Shows Moderate Growth
The report from the Department of Commerce also detailed consumer activity. Consumer spending increased by 0.4% in February. This growth suggests households may be exercising some caution amidst economic uncertainty and trade tensions.
In contrast, personal income saw a stronger increase of 0.8%, surpassing market predictions. This boost in income contributed to a rise in the personal savings rate, which climbed to 4.6%.
Implications for the Federal Reserve
The higher-than-anticipated core inflation reading could influence the Federal Reserve’s monetary policy decisions. While the Fed reduced interest rates substantially in 2024, the recent inflation data might encourage the central bank to maintain its current stance before considering further rate cuts.
Commenting on the data, Ellen Zentner, Chief U.S. Economist at Morgan Stanley, noted the pressure it adds:
“The inflation data wasn’t alarmingly high, but it certainly adds pressure for the Fed to remain in a holding pattern, especially considering the uncertainty surrounding tariffs.”
Policymakers will likely continue to monitor incoming economic data closely as they assess the path forward for interest rates.
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