Inflation rose in line with expectations in January, according to an important measure the Federal Reserve uses as it trades interest rate cuts.
The PCE price index, excluding food and energy costs, rose 0.4% during the month and 2.8% from a year ago, as expected according to Dow Jones estimates. Monthly gains were just 0.1% in December and 2.9% from a year earlier.
The headline personal consumption expenditures index, including the volatile food and energy categories, rose 0.3% monthly and 2.4% on a 12-month basis, compared with estimates of 0.3% and 2.4%, respectively, according to figures released Thursday by the Bureau of Economic Analysis. Of the Ministry of Commerce. . The December numbers were respectively 0.1% and 2.6%.
The moves came amid an unexpected jump in personal income, which rose 1%, well above expectations of 0.3%. Spending decreased by 0.1% versus estimates of an increase of 0.2%.
January's price rises reflect a continuing shift to services rather than goods as the economy returns to normal from disruptions caused by the Covid pandemic.
Services prices rose by 0.6% on a monthly basis while goods fell by 0.2%. On a 12-month basis, services rose 3.9% and goods fell 0.5%. Within these categories, food prices accelerated by 0.5%, offset by a 1.4% decline in energy prices. On an annual basis, food rose 1.4% while energy fell 4.9%.
Both headline and core gauges remain ahead of the Fed's target of 2% annual inflation, although the year-over-year core reading was the lowest since February 2021. While the Fed officially uses the headline gauge, policymakers tend to pay more attention to Pay attention to fundamentals as a better indicator of where long-term trends are headed.
CHICAGO, ILLINOIS – FEBRUARY 13: Customers shop at a grocery store on February 13, 2024 in Chicago, Illinois. Grocery prices rose 0.4% from December and 1.2% over the past year, the slowest annual increase since June 2021. (Photo by Scott Olson/Getty Images)
Scott Olson | Getty Images News | Getty Images
“Total, [the report] “It meets expectations, and some of the worst fears in the market have not been met,” said Stephen Gallagher, chief US economist at Société Générale. “The key is that we don't see the broad nature of the increases that we were more likely to see.” fear of.”
Wall Street had little reaction to the news, with stock market futures slightly higher and Treasury yields slightly lower. Futures markets, where traders bet on the direction of interest rates, also indicated little movement, with prices leaning toward the Fed's first interest rate cut in June.
The BEA report on Thursday also showed that consumers continue to dip into savings as prices remain high. The personal savings rate was 3.8% on a monthly basis, slightly higher than in December but a full percentage point lower than it was in June 2023.
In other economic news, a Labor Department report showed that companies remain reluctant to lay off workers.
Initial jobless claims totaled 215,000 for the week ending February 24, up 13,000 from the prior period and more than the Dow Jones estimate of 210,000 but still largely in line with recent trends. However, continuing claims, which were delayed a week, rose to just over 1.9 million, an increase of 45,000 and higher than the FactSet estimate of 1.88 million.
These reports come at a time when central bank officials are studying the future of monetary policy after 11 increases in interest rates, totaling 5.25 percentage points. These increases extend from March 2022 to July 2023, as the Fed battles inflation that peaked at its highest level in more than 40 years in mid-2022.
Officials have said in recent days that they expect to begin reversing the increases sometime this year. However, the timing and extent of policy easing is uncertain as recent data indicated that inflation may be more stubborn than expected.
“January’s hot inflation data adds to uncertainty and pushes back interest rate cut expectations,” said David Alkali, chief macro strategist at Lazard. “But chances remain that this represents a speed bump, and that although there may be additional short-term volatility in the market narrative, ultimately the depth of any rate-cutting cycle over time will be more important than when it begins.”
January's CPI data raised concerns that inflation would continue to rise, although many economists saw the rise as seasonality-driven and housing increases 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 the substitutions consumers make for goods and services as prices fall. Where the CPI is seen as a simpler measure of price, the CPI is seen as more representative of what people actually buy.
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