US Core PCE Price Index Rises 0.6% in January, Inflation Expectations Increase
By On Friday, the US Department of Commerce reported that its core Personal Consumption Expenditures (PCE) price index increased 0.6% in January, up from December's revised reading of 0.4%.[0] This reading was higher than expected, as analysts had predicted a rise of only 0.4%. This indicates that inflation is increasing and could lead the Federal Reserve (Fed) to tighten its monetary policy, which would increase the value of the US Dollar.[0]
In January, the PCE-price index increased by 0.6% from the previous month.[1] Core prices increased by 0.6% in January from December, which had seen a 0.4% increase.[2] Economists believe that the core measure is a more accurate forecaster of inflation in the future.[3]
Over the last year, core Personal Consumption Expenditures (PCE), which is the Federal Reserve's favored gauge of inflation, increased 4.7%, up from the 4.6% increase reported in December.[4] It was anticipated by economists that the yearly inflation rate would increase by only 4.3%.[5]
The US Bureau of Economic Analysis also said that personal income increased 0.6% in January, up from 0.2% in December, but missed expectations as economists were looking for a 1% increase.[4] Personal spending increased by 1.8%, higher than the expected 1.4%.
It is anticipated that the Federal Reserve will increase a key short-term interest rate a few more times this year, thus limiting consumer spending. It is now expected that the markets will experience 25-bp rate increases in March, May, and June.[6] The CME FedWatch tool estimates the likelihood of a 25-bp rate increase to 5.25%-5.50% as 51.9%, and the probability of 5.50%-5.75% as 23.5%.[7]
Inflation readings that are increasing indicate that the Federal Reserve will probably maintain higher rates for a longer period of time, which is not advantageous for the possibility of avoiding a recession in the economy.[8] The CME Group's FedWatch tool, which uses futures contract prices from the short-term market targeted by the Federal Reserve, currently estimates the chance of a quarter percentage point increase at around 67%.[9] Around one-third of people, with the figure increasing, believe the Federal Reserve will raise rates by 0.5% based on the most recent reports.
Markets are closed Monday in observance of President’s Day.[10]
0. “US PCE Inflation Accelerates, Adding Pressure for More Fed Hikes” Bloomberg, 24 Feb. 2023, https://www.bloomberg.com/news/articles/2023-02-24/us-pce-inflation-accelerates-adding-pressure-for-more-fed-hikes
1. “Personal Income and Outlays, January 2023” Forex Factory, 24 Feb. 2023, https://www.forexfactory.com/news/1207560-personal-income-and-outlays-january-2023
2. “Inflation surprisingly rose in January, according to the Fed's preferred gauge” WICZ, 24 Feb. 2023, https://www.wicz.com/story/48444410/inflation-surprisingly-rose-in-january-according-to-the-feds-preferred-gauge
3. “Key Fed inflation measure rose 0.6% in January, more than expected” CNBC, 24 Feb. 2023, https://www.cnbc.com/2023/02/24/key-fed-inflation-measure-rose-0point6percent-in-january-more-than-expected.html
4. “Americans splash out with abandon in January” ShareCast, 24 Feb. 2023, https://www.sharecast.com/news/international-economic/americans-splash-out-with-abandon-in-january–12464212.html
5. “Gold price remains under pressure, but largely ignores hotter inflation data as core PCE rises 0.6% in January, annual …” Kitco NEWS, 24 Feb. 2023, https://www.kitco.com/news/2023-02-24/Gold-price-remains-under-pressure-but-largely-ignores-hotter-inflation-data-as-core-PCE-rises-0-6-in-January-annual-inflation-rises-4-7.html
6. “Consumer spending jumps more than expected in January, PCE inflation speeds up” Seeking Alpha, 24 Feb. 2023, https://seekingalpha.com/news/3940619-consumer-spending-jumps-more-than-expected-in-january-pce-inflation-speeds-up
7. “Personal spending seen climbing in January, but what did prices do: PCE preview” Seeking Alpha, 23 Feb. 2023, https://seekingalpha.com/news/3938481-personal-spending-seen-climbing-in-january-but-what-did-prices-do-pce-preview
8. “An inflation gauge tracked by Fed accelerated in January” Toledo Blade, 24 Feb. 2023, https://www.toledoblade.com/business/retail/2023/02/24/an-inflation-gauge-tracked-by-fed-accelerated-in-january/stories/20230224093
9. “Inflation rose to 5.4% in January, according to key gauge watched by Fed” Washington Examiner, 24 Feb. 2023, https://www.washingtonexaminer.com/policy/economy/inflation-rose-to-5-4-in-january-according-to-key-gauge-watched-by-fed
10. “Fed minutes, PCE inflation, Walmart earnings: What to know this week” Yahoo News, 19 Feb. 2023, https://news.yahoo.com/stock-market-week-ahead-pce-inflation-federal-reserve-retail-earnings-142330965.html
