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WASHINGTON, March 29, Reuters – The U.S. S. With the cost of goods and services other than housing and energy declining sharply in February, prices stabilized and the Federal Reserve’s June interest rate cut remained a possibility.
The Commerce Department’s report released on Friday also revealed that consumer spending increased last month for the first time in almost a year, highlighting the resilience of the economy. Because of the country’s robust labor market, the US continues to perform better than its international counterparts even with higher borrowing costs.
The chief economist at LPL Financial in Charlotte, North Carolina, Jeffrey Roach, stated that “core services inflation is slowing and will likely continue throughout the year.”. “The data ought to persuade the Fed to start the process of normalizing interest rates by the time it meets in June. ****.
The Bureau of Economic Analysis of the Commerce Department reported that last month’s personal consumption expenditures (PCE) price index increased by 0.3 percent. Data for January was updated to reflect a 0.4 percent increase in the PCE price index, as opposed to the 0.3 percent increase that had previously been reported. PCE price index was expected to increase by 0.4 percent for the month, according to Reuters polled economists.
A 3.4 percent increase in the price of gasoline and other energy products helped to drive up goods prices by 0.05 percent last month.
The costs of vehicles, apparel, footwear, and recreational goods all saw significant price increases. Nevertheless, the cost of durable manufactured goods such as furniture and appliances was muted.
PCE inflation increased by 2.5 percent in the year ending in February, following a 2 percent increase in January.
The rate of price pressures has decreased from the first half of the year, but it is still higher than the U.S. s. the 2 percent target set by the central bank.
The inflation data for February, according to Fed Chair Jerome Powell on Friday, was “more along the lines of what we want to see.”. ****.
Although the policy rate has increased by 525 basis points since March 2022, Fed officials last week decided to leave it unchanged in the current range of 5 percent to 5 percent.
This year, policymakers plan to cut rates three times. June is when the financial markets anticipate the first rate cut. Most Americans. s. Except for the foreign exchange market, all financial markets were closed on Good Friday. According to the data, the dollar fell relative to a basket of currencies.
A FEW STICKINESS REREMINS.
With food and energy excluded, the PCE price index saw a 0.3 percent increase in value last month. That came after a downwardly revised 0.5 percent increase in January. According to prior reports, the so-called core PCE price index increased by 0.4 percent in January.
After increasing 2 point 9 percent in January, core inflation grew 2 point 8 percent year over year in February, the smallest gain since March 2021. For monetary policy purposes, the Fed monitors PCE price measures.
Over time, monthly inflation readings of 0 percent are required to return inflation to target. Some stickiness persists even though different weights prevented the PCE price data from reproducing some of the firmer readings from the producer and consumer price reports.
For the last three months, the annualized rate of increase in core inflation has been 3.5%.
After rising by 0.6 percent in January, service prices grew by 0.3 percent. Both housing and utility costs increased by 0.5%. Along with financial services and insurance, there were also significant price increases for recreational services.
However, the price of eating out, lodging in hotels and motels, and healthcare increased slightly, while the cost of transportation services barely increased.
Following a spike of 0.7 percent in January, PCE services inflation, excluding energy and housing, increased by 0.2 percent in the previous month. Following a 3.5 percent increase in January, the so-called super core grew by 3.3% year over year. In order to evaluate their effectiveness in containing inflation, policymakers are keeping an eye on the super core data.
It has increased by 4.5 percent over the last three months, according to some economists, supporting a postponement of rate cuts. However, some said that the high reading did not indicate a change in the trend and was instead the product of the price spike in January.
According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, “the six drivers of the surge in core inflation in 2021-to-22 – expanding margins, rapid wage gains, exploding rents, supply chain chaos, and pass-through from higher global food and energy prices – have all normalized or are in the process of normalizing, with no real signs of any reversal.”.
This indicates that there is a downward fundamental pressure on inflation, but unusual events can occur in specific months without affecting the overall trend. “.
More than two-thirds of U.S. consumer spending is allocated to consumer spending. S. economic activity increased by 0.8% last month. Following a 0.2% increase in January, that was the biggest gain since January 2023. After falling 0.2 percent in January, consumer spending increased by 0.4 percent when inflation was taken into account.
Given the rise in “real consumer spending,” it appears that the first quarter’s consumption gains were mostly maintained. Because of this, the Atlanta Fed increased its forecast for the growth of the GDP this quarter from a 2 percent pace to a 2 percent annualized rate.
The Bureau of Census Bureau data also provided support to growth prospects, as it showed that wholesale and retail inventories increased rapidly in February, offsetting a 1.5 percent increase in the goods trade deficit.
However, a large portion of the spending was covered by savings as income increased by 0.3 percent following an acceleration of 1.0 percent in January due to a special dividend from Costco Wholesale Corporation. Household disposable income decreased by 0.1 percent when taxes and inflation are taken into consideration. From 4 percent in January to 3 percent in February, the saving rate fell to its lowest point since December 2022.
“Domestic consumers are not ready for a downturn in the labor market should it occur,” stated Kathy Bostjancic, chief economist at Nationwide. “As long as employment growth remains strong, it can underpin solid spending.”.
Chizu Nomiyama handled editing; Lucia Mutikani reported.
