US inflation rose moderately in February; consumer spending increases

In the United States, prices rose moderately in February and the cost of services outside of housing slowed considerably, keeping an interest rate cut by the Federal Reserve in June on the table.

The PCE inflation index rose 0.3% last month, the Commerce Department reported Friday. January data was revised upward to show that PCE rose 0.4% instead of the 0.3% reported previously.

In the 12 months to February, inflation as measured by the PCE rose 2.5%, after rising 2.4% in January. Economists polled by Reuters had expected the PCE index to gain 0.4% month-on-month and 2.5% year-on-year.

Price pressures are easing, although the pace has slowed compared to the first half of last year.

Fed officials last week left the U.S. central bank’s key rate unchanged at its current range of 5.25% to 5.50%, after raising it by 525 basis points since March 2022.

Policymakers expect three rate cuts this year. Financial markets expect the first rate cut in June. Fed Governor Christopher Waller said Wednesday that there is “no rush to cut the key rate” at this time, but he did not rule out the possibility of reducing borrowing costs later in the year.

Excluding volatile food and energy components, the PCE index rose 0.3% last month. This followed an upwardly revised gain of 0.5% in January. The so-called core PCE had already recorded an increase of 0.4% in January.

Core PCE grew 2.8% year-over-year in February, after growing 2.9% in January.

The Fed tracks PCE price measures for its 2% inflation target. Monthly inflation data of 0.2% over time is needed to bring inflation back to the target level.

PCE services inflation, excluding energy and housing, rose 0.2% last month after rising 0.7% in January.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.8% last month after rising 0.2% in January, the report also showed.

Source: Terra

Rose

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