Inflation rose in line with expectations in February, which likely prevented the Federal Reserve from starting to consider interest rate cuts, in a measure the central bank considers its most important barometer.
The price index for personal consumption expenditures excluding food and energy increased 2.8% year-over-year and 0.3% from the previous month, the Commerce Department reported Friday. Both figures match Dow Jones estimates.
Including volatile food and energy costs, the overall PCE figure showed an increase of 0.3% for the month and 2.5% at the 12-month rate, compared to estimates of 0.4 % and 2.5%.
Stock and bond markets were closed for Good Friday.
Although the Fed considers both of these measures when setting policy, it considers base rates to be a better indicator of long-term inflationary pressures. The Fed targets annual inflation of 2%; Core PCE inflation has not been below this level for three years.
“Nothing really too surprising. These are obviously not the numbers the Fed wants to see, but I don’t think it’s going to surprise anyone when they return to work on Monday,” said Victoria Greene, chief investment officer at G Squared Private. Wealth, told CNBC. “I think everyone is going to look to work pretty quickly and say that if we see weaknesses and cracks here, this little stickiness in inflation and PCE won’t matter as much.”
Rising energy costs helped push the overall figure up, with an increase of 2.3%. The food index increased slightly by 0.1%. Inflationary pressures came more from goods, which increased by 0.5%, compared to an increase of 0.3% for services. This bucked last year’s trend, in which services grew 3.8% while goods actually fell 0.2%.
Further upward pressure came from international travel services, air transport, and financial services and insurance. On the goods side, the category of motor vehicles and their spare parts was the one that contributed the most to the increase.
Along with rising inflation, consumer spending jumped 0.8% on the month, well above the 0.5% estimate, which could indicate additional inflationary pressures. Personal income rose 0.3%, slightly less than the 0.4% estimate.
The release comes just over a week after the central bank again kept its short-term borrowing rate stable and indicated that it had still not seen enough progress in inflation to consider reducing inflation. reduce it. In their quarterly update of rate projections, members of the Federal Open Market Committee again highlighted reductions of three-quarters of a percentage point this year and in 2025.
Markets expect the Fed to remain on hold again when it issues its decision on May 1, then begin cutting rates at the June 11-12 meeting. Market prices are in line with FOMC projections for three cuts, according to the CME Group’s FedWatch measure of futures market action.
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