U.S. Sees Moderate Inflation Rise in February as Consumer Spending Soars

Washington: In February, U.S. prices experienced a moderate increase, while consumer spending surged, signaling a complex economic landscape and leaving the possibility of a Federal Reserve interest rate cut in June.

The Commerce Department’s Bureau of Economic Analysis reported that the personal consumption expenditures (PCE) price index rose by 0.3% last month, with January’s data revised upward to show a 0.4% increase instead of the previously reported 0.3%.

Over the 12 months leading up to February, PCE inflation saw a 2.5% increase, compared to a 2.4% rise in January, according to economists surveyed by Reuters. While price pressures are indeed easing, the pace has slowed from the robust growth observed in the first half of the previous year.

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Despite these developments, the Federal Reserve opted to keep its policy rate unchanged within the 5.25%-5.50% range last week. However, policymakers are anticipating three rate cuts this year, with financial markets foreseeing the first cut in June. Fed Governor Christopher Waller remarked on Wednesday that while there is currently no urgency to reduce the policy rate, he did not rule out potential adjustments later in the year.

Excluding volatile food and energy components, the core PCE price index also saw a 0.3% increase last month, following an upwardly revised 0.5% gain in January. Core inflation stood at 2.8% year-on-year in February, slightly lower than January’s 2.9%. The Fed closely monitors the PCE price measures to achieve its 2% inflation target, emphasizing the importance of monthly inflation readings of 0.2% over time to reach this goal.

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PCE services inflation, excluding energy and housing, increased by 0.2% last month after a notable 0.7% surge in January. Policymakers are closely watching the “super core” inflation indicator to assess progress in combating inflation.

In a report also released, consumer spending, a key driver of the U.S. economy, jumped by 0.8% last month following a 0.2% increase in January.