Feb 29, 2024 - Business

Fed's favorite inflation measure confirms quicker price gains in January

Shopper in aisle of a home improvement store

Photo: Spencer Platt/Getty Images

Prices rose at a quicker pace in January, according to an inflation measure watched closely by Federal Reserve officials released on Thursday.

Why it matters: The measure confirms that a trend of cooler price increases that defined much of last year came to a halt last month — a warning that beating inflation might take longer than previously thought.

By the numbers: The Personal Consumption Expenditures price index rose 0.3% last month — breaking a stretch of more mild increases. Meanwhile, core PCE —the measure of underlying inflation that excludes volatile energy and food items — rose 0.4%, the quickest since January 2023.

  • Since the jump in price gains then was bigger than that seen last month, the annual rate of inflation eased: from the same month a year ago, the PCE price index increased 2.4% compared to the 2.6% in December.
  • Core PCE rose 2.8% from one year ago versus the 2.9% the prior month.

The big picture: The data also showed that the hotter price increases came alongside a pullback in consumer spending.

  • Personal consumption expenditures rose 0.2% — down from the 0.7% increase the prior month. In real terms, consumer spending fell by 0.1%, reflecting a sharp pullback in spending on goods including autos and trucks, which offset a slight increase in services spending.
  • Disposable personal income rose 0.3% last month — the same as December — but it was flat accounting for inflation.

What to watch: Fed officials say they have taken note of the recent run of hot data (including the pick-up in price gains alongside strong job gains).

  • The big question is what it could mean for the central bank's plans to lower interest rates later this year. An interest rate cut at a meeting next month was already off the table.
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