The personal consumption expenditures (PCE) price index, the Fed’s favorite indicator of inflation, posted better-than-expected gains in January in both the headline index and the core index, which excludes food and energy. PCE also increased significantly, putting more pressure on the Fed to continue raising interest rates.
| Key Point |
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Upper row: PCE Composite Price Index and Core Price Index (both year-on-year changes), Lower row: Real PCE (month-to-month changes)
Source: Bureau of Economic Analysis
PCE increased by 1.8% from the previous month. The median forecast of economists surveyed by Bloomberg was for a 1.4% increase. Inflation-adjusted real PCE increased by 1.1% from the previous month. It reversed from the slump in November and December last year and became the biggest growth since March 2021. It reflected increased spending on goods and services such as automobiles, food and beverage services and lodging.
Each January number highlights the risk of sustained high inflation.The PCE price index slowed in December, bolstering expectations of a slowdown in rate hikes. However, with the upward revision of the December statistics and the reacceleration in January, such a slowdown has almost been erased. In addition, a combination of resilience in consumer spending and an unusually strong labor market will make it more difficult for the Fed to reach its 2% inflation target.
Bloomberg Economics (BE) economists Anna Wong and Eliza Winger said: “The strong spending growth and acceleration in both core goods and supercore service prices is bad news for inflation.” pointed out. “With supply chain bottlenecks largely removed, recent inflation has been demand-driven. No,” he said.
