In February, prices experienced a decline in the US, accompanied by a notable slowdown in the growth of non-housing and energy service costs. This has sparked speculation about a potential interest rate cut by the Federal Reserve in June.
According to the Commerce Department's report released on Friday, consumer spending witnessed a robust increase last month, reaffirming the economy's resilience. Despite facing elevated borrowing expenses, the US economy continues to outshine its counterparts, buoyed by a robust labor market.
Economists anticipate a continued deceleration in inflation within the essential services sector throughout the year. They also anticipate that the data by the time of the Fed's June meeting will provide convincing evidence to commence the rate normalization process.
The Personal Consumption Expenditures (PCE) Price Index edged up by 0.3% last month, as per the Commerce Department's Bureau of Economic Analysis. Additionally, January's data underwent an upward revision, reflecting a growth rate of 0.4% instead of the previously reported 0.3%. Analysts surveyed by Reuters had projected a 0.4% increase in the PCE price index.
Commodity prices saw a 0.5% increase last month, with gasoline and other energy prices leading the surge at 3.4%. Additionally, prices for recreational goods, vehicles, clothing, and footwear witnessed upticks, although prices for furniture, appliances, and other manufactured durables remained steady.
Over the past 12 months, PCE inflation has climbed by 2.5%, marking a slight uptick from the 2.4% increase in January. Despite minimal activity in US stock markets, the S&P 500 posted its strongest first-quarter performance in five years on Thursday.
While pressure on prices is showing signs of alleviation, the growth pace has moderated compared to the first half of last year, with inflation persisting above the Fed's 2% target. Federal Reserve Chairman Jerome Powell noted that February's inflation data aligns with the Fed's expectations.
Policymakers anticipate three rate cuts this year, while financial markets project the first cut to occur in June. Most US financial markets observed closure on Good Friday, except for the foreign exchange market, where the dollar witnessed a decline against a basket of currencies.
Excluding volatile components like food and energy, the PCE price index increased by 0.3% last month, following a 0.5% rise in January. Core inflation for the year climbed to 2.8% in February, marking the smallest increase since March 2021. Monthly inflation rates of 0.2% are necessary to achieve the inflation target.
Over the past three months, core inflation has risen by 3.5%. Prices for services increased by 0.3%, representing a slowdown from January's 0.6% surge. There was an uptick in prices for housing and utilities, recreational services, as well as financial services and insurance.
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