The personal consumption expenditures price index (PCE), the Federal Reserve's favored measure of inflation, rose by 0.3% in January, according to the latest report. This increase comes as policymakers assess their strategy for potential adjustments to interest rates. The 12-month core measure, which excludes food and energy costs, recorded a 2.6% annual rate, marking a decrease from December's revised 2.9% level.
The core PCE measure is considered by Fed officials to be a more accurate indicator of longer-term inflation trends. It is noted for its broader scope, as it adjusts for shifts in consumer behavior and places less emphasis on housing costs. In January, core PCE also saw a monthly rise of 0.3%. In contrast, goods prices experienced a significant uptick of 0.5%, largely driven by a 0.9% increase in motor vehicles and parts and a 2% surge in gasoline prices.
A surprising development was the robust growth in personal income, which climbed 0.9% in January, surpassing expectations of a 0.4% rise. Concurrently, the personal savings rate showed a notable increase, reaching 4.6%. These figures provide context for the Federal Reserve as it considers future monetary policy decisions.
The headline inflation metric showed a slight easing, declining by 0.1 percentage point to an annual rate of 2.5%. As the Federal Reserve deliberates over its next move regarding interest rates, market sentiment suggests a high probability of a quarter percentage point rate cut by June, with the CME Group's FedWatch gauge indicating this likelihood to be just above 70%.