Inflation rose in February in line with expectations, likely putting the Federal Reserve on hold before it could start considering rate cuts, according to a measure the central bank considers its key barometer.
The price index for personal consumption expenditure excluding food and energy rose 2.8% on a 12-month basis and was 0.3% higher than a month ago, the Commerce Ministry said on Friday. Both figures were in line with Dow Jones estimates.
Including volatile food and energy costs, the overall PCE value showed an increase of 0.3% for the month and 2.5% on a twelve-month basis, compared to estimates of 0.4% and 2.5%.
Both the stock and bond markets were closed in honor of Good Friday.
Although the Fed looks at both measures when making policy, it views the core as a better gauge of long-term inflationary pressures. The Fed targets annual inflation of 2%; Core PCE inflation has not been below that level in three years.
“Nothing really surprising. Obviously not the numbers the Fed wants to see, but I don’t think this will catch anyone off guard when they go back to work on Monday,” said Victoria Greene, chief investment officer at G Squared Private. Wealth, told CNBC. “I think everyone will move into the labor market pretty quickly and let’s face it, if we see some weakness and cracks here, this little stickiness in inflation and PCE won’t matter that much.”
Rising energy costs made headlines rise, with a 2.3% increase. The food index rose by 0.1%. Inflationary pressures came more from the goods side, which rose 0.5%, compared to the 0.3% increase for the services sector. That bucked the trend of last year, in which services rose 3.8%, while goods actually fell 0.2%.
Other upward pressure came from international travel services, air transport and financial services and insurance. On the goods side, the motor vehicles and parts category made the largest contribution.
Along with the rise in inflation, consumer spending rose 0.8% this month, well above the 0.5% estimate, possibly indicating additional inflationary pressure. Personal income rose 0.3%, slightly softer than the 0.4% estimate.
The publication comes just over a week after the central bank kept its short-term interest rate stable again and indicated it had still not seen enough progress on inflation to consider a cut. In their quarterly update of interest rate projections, members of the Federal Open Market Committee again pointed to a three-quarter percentage point cut this year and in 2025.
Markets expect the Fed to wait again when it announces its decision on May 1, and then start cutting at the June 11-12 meeting. Market prices are in line with FOMC projections for three cuts, according to CME Group’s FedWatch measure of futures market action.