Inflation rose in line with expectations in February, according to what the Fed considers a more important barometer, which could keep the Fed on hold before it starts considering a rate cut.
this personal consumption expenditures price index The U.S. Commerce Department reported on Friday that commodity prices excluding food and energy increased 2.8% over the 12 months and 0.3% month-on-month. Both numbers were in line with Dow Jones forecasts.
Including volatile food and energy costs, the overall PCE data showed growth of 0.3% for the month and 2.5% for the 12 months, compared with expectations of 0.4% and 2.5%.
Stock and bond markets were closed for the Good Friday holiday.
While the Fed considers both measures when setting policy, it believes the core measure provides a better gauge of long-term inflationary pressures. The Fed’s annual inflation target is 2%; core personal consumption expenditures inflation has not fallen below that level in three years.
“Nothing particularly surprising,” said Victoria Greene, chief investment officer at G Squared Private. “Obviously it’s not the number the Fed wanted to see, but I don’t think it’s going to put anyone back to work on Monday. “I was caught off guard,” Fortune told CNBC. “I think everyone will be quick to turn to the labor market and say, if we see some weakness and cracks here, this little stickiness in inflation and PCE isn’t going to matter that much.”
Rising energy costs pushed up the overall figure, which grew 2.3%. The food index edged up 0.1%. Most of the inflation pressure came from goods, which rose by 0.5%, while the service industry rose by 0.3%. This is a reversal from last year’s trend, when services grew by 3.8%, while goods actually fell by 0.2%.
Other upward pressure came from international travel services, air transport, financial services and insurance. On the merchandise front, the motor vehicles and parts category was the largest contributor.
As inflation rises, consumer spending surged 0.8% this month, well above expectations of 0.5% and potentially signaling further growth in inflationary pressures. Personal income grew 0.3%, slightly below expectations of 0.4%.
More than a week ago, the central bank once again kept its benchmark short-term borrowing rate steady and said inflation had not yet made enough progress to consider a rate cut. Federal Open Market Committee members again pointed to 3 percentage points of rate cuts this year and in 2025 in their quarterly updates to their interest rate forecasts.
The market expects the Fed to remain on hold again when it releases its decision on May 1, and then start cutting interest rates at its meeting on June 11-12. Markets are pricing in line with forecasts for three rate cuts from the Federal Open Market Committee (FOMC), according to CME Group’s FedWatch Futures Market Action Indicator.
