Inflation rose in line with expectations in January, according to a key indicator used by the Federal Reserve when considering a rate cut.
The personal consumption expenditures price index, which excludes food and energy costs, rose 0.4% for the month and 2.8% from a year ago, in line with the Dow Jones consensus forecast.
According to data released by the U.S. Department of Commerce on Thursday, overall personal consumption expenditures, including volatile food and energy categories, increased by 0.3% monthly and 2.4% in the past 12 months, compared with estimates of 0.3% and 2.4% respectively. Bureau of Economic Analysis.
The measures came as personal income unexpectedly rose by 1%, well above expectations of 0.3%. Spending fell 0.1%, compared with expectations for a 0.2% growth.
January’s price gains reflected a shift away from goods and toward services as the economy returns to normalcy from the devastation of the coronavirus pandemic.
Service prices increased by 0.6% from the previous month, while commodity prices fell by 0.2%; in the 12 months, the service industry grew by 3.9%, while commodity prices fell by 0.5%. Within these categories, food prices rose 0.5%, offset by a 1.4% decline in energy prices. Compared with the same period last year, food rose 1.4%, while energy fell 4.9%.
Both overall and core indicators remain ahead of the Federal Reserve’s 2% annual inflation target. While the Fed officially uses headline indicators, policymakers tend to focus more on core indicators to better indicate where long-term trends are heading.
Wall Street reacted little to the news, with stock market futures rising slightly and Treasury yields rising slightly. There was also little movement in the futures market, where traders bet on the direction of interest rates, pricing in a first rate cut by the Federal Reserve in June.
“Overall, (the report) was in line with expectations, but some of the market’s most serious concerns were not met,” said Stephen Gallagher, chief U.S. economist at Societe Generale. “The key is that we didn’t see more of what we were seeing. Concerns about the widespread nature of the growth.”
Thursday’s Bureau of Economic Analysis report also showed that consumers continue to dip into their savings as prices remain high. The personal savings rate for the month was 3.8%, slightly higher than in December but down a full percentage point from June 2023 levels.
In other economic news, Department of Labor Report It means that companies are still unwilling to lay off employees.
In the week ended February 24, initial jobless claims totaled 215,000, an increase of 13,000 from the previous period and exceeding the Dow Jones estimate of 210,000, but still basically in line with recent trends. However, continuing claims rose a week later to just over 1.9 million, an increase of 45,000 and above the FactSet forecast of 1.88 million.
The reports come as central bankers consider the future of monetary policy after raising interest rates 11 times by a total of 5.25 percentage points. From March 2022 to July 2023, the Federal Reserve will raise interest rates at a time when inflation reaches its highest point in more than 40 years in mid-2022.
Officials have said in recent days that they expect to begin reversing the price increases sometime this year. However, the timing and extent of policy easing is uncertain, as recent data suggests inflation may be more stubborn than expected.
January’s consumer price index data raised concerns about continued high inflation, although many economists believe the rise in inflation is driven by seasonal factors and that the increase in housing is unlikely to continue.
While the CPI is used as an input into personal consumption expenditures, Fed officials focus more on the latter because it adjusts for consumer substitution of goods and services when prices fall. CPI is seen as a simpler measure of price, while PCE is seen as more representative of what people actually buy
