Mar 29, 2024 - Economy

Fed's go-to inflation gauge cooled in February

A customer shops for food at a grocery store on March 12, 2024 in San Rafael, California.

A customer shops at a grocery store in San Rafael, Calif. earlier this month. Photo: Justin Sullivan/Getty Images

An inflation gauge closely watched by the Federal Reserve showed price pressures eased last month alongside a rebound in consumer spending, the government said Friday.

Why it matters: The data suggests more benign inflation compared to the start of the year, but the indicator shows it is still above the Fed's target — the latest sign that crushing inflation will be a rocky process.

By the numbers: The Personal Consumption Expenditures Price Index — the measure targeted by the Fed — rose 0.3% in February, slowing from the prior month. Over the past year, PCE was 2.5%, compared to the 2.4% in January.

  • Meanwhile, core PCE (which excludes food and energy prices) rose 0.3% compared to the 0.5% in January.
  • Over the past year, it came in at 2.8%, the lowest in three years.

Yes, but: The measure is still well above the 2% level that the Fed targets.

  • February's increases compare to much cooler readings seen at the end of 2023, which showed the index flat or barely rising.

Zoom out: Other data released on Friday showed a notable rebound in consumer spending, underscoring the resiliency of shoppers.

  • Personal consumption expenditures rose 0.8% last month, up the 0.2% in January, led by strong spending on financial services and motor vehicles.
  • Meanwhile, after-tax income rose 0.2% compared to the 0.4% increase in January.
  • The personal saving rate—what's left after consumers spend—was 3.6%, the lowest since last spring.

The bottom line: Fed officials want to make sure inflation is moving toward its 2% target before lowering interest rates.

  • A series of inflation data for February shows the Fed needs more proof that is the case.
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