Inflation rose as expected in February, likely keeping the Federal Reserve on hold before it considers rate of interest cuts, in response to a measure the central bank considers its more necessary barometer.
The price index of private consumption expenditures excluding food and energy, it rose 2.8% on a 12-month basis and was up 0.3% from a month earlier, the Commerce Department said on Friday. Both numbers were in step with Dow Jones estimates.
Including variable food and energy costs, the headline PCE reading showed increases of 0.3% on a monthly basis and a pair of.5% on a 12-month basis, compared with estimates of 0.4% and a pair of.5%.
Both the stock market and bonds were closed for the Good Friday holiday.
Although the Fed considers each measures when making policy, it believes the core index is a greater measure of long-term inflation pressures. The Fed targets annual inflation of two%; Core PCE inflation has not been below this level for 3 years.
“Nothing is absolutely surprising. Obviously these are usually not the numbers the Fed desires to see, but I do not think it’ll surprise anyone after they return to work on Monday,” Victoria Greene, chief investment officer at G Squared Private Wealth, told CNBC. “I believe everyone will turn to the labor market pretty quickly and say, ‘Well, perhaps if we see some weaknesses and cracks here, this little little bit of inflation and PCE stickiness won’t matter a lot.’
Rising energy costs helped push the headline reading up 2.3%. The food index increased by 0.1%. Inflationary pressure was stronger on the products side, which increased by 0.5% in comparison with a 0.3% increase in services. This bucked the trend seen last yr, when services grew by 3.8% and goods fell by 0.2%.
The remaining upward pressure got here from international travel services, air transport and financial and insurance services. On the products side, the motorized vehicles and parts category had the biggest share.
As inflation rose, consumer spending rose 0.8% for the month, well above estimates of 0.5%, which could indicate additional inflationary pressure. Personal income rose 0.3%, barely lower than the 0.4% estimate.
The release comes just over every week after the central bank again held its benchmark short-term lending rate regular and indicated it still had not seen enough progress on inflation to think about a cut. In its quarterly rate projection update, members of the Federal Open Market Committee again pointed to a few quarter-percentage point cuts this yr and in 2025.
Markets expect the Fed to place rates of interest on hold again when it declares its decision on May 1 after which begin cutting rates at its meeting on June 11-12. Market prices are in step with FOMC projections for 3 cuts, in response to CME Group’s FedWatch futures market measure.
