The personal consumption expenditures price index (PCE), the Federal Reserve’s preferred inflation measure, increased 0.3% for the month and showed a 2.5% annual rate. Excluding food and energy, core PCE also rose 0.3% for the month and was at 2.6% annually.
The slight easing of inflation is attributed to concerns over President Donald Trump’s tariff plans, according to a Commerce Department report released on Friday. The Federal Reserve officials are more closely monitoring the core PCE measure as it provides a better indicator of longer-term trends.
On the personal income front, January saw a 0.9% increase, exceeding expectations for a 0.4% gain. However, this rise did not translate into increased spending, which decreased 0.2%, contrary to forecasts for a 0.1% gain. The savings rate also jumped to 4.6%.
Inflation news is mixed, with headline inflation easing by 0.1 percentage point from the previously reported 2.9%. The numbers are in line with market expectations and are likely to keep Federal Reserve Chair Jerome Powell’s next move on hold regarding interest rates.
Market reactions were positive, with stock market futures pointing higher, while Treasury yields were mostly lower. However, Fed policymakers remain cautious, seeking more evidence that inflation is returning to the 2% goal before considering rate cuts further. The odds of a June quarter percentage point rate cut have increased slightly, now above 70%, according to the CME Group’s FedWatch gauge.
While the consumer price index (CPI) reported earlier this month showed an all-items inflation rate of 3% and 3.3% at the core, the Federal Reserve prefers the PCE measure due to its broader scope, adjustments for changes in consumer behavior, and reduced emphasis on housing costs.
Source: https://www.cnbc.com/2025/02/28/pce-inflation-january-2025-.html