As per the PCE data released, the inflation increased as expected in January. The PCE data was released on 29th February at 8:30 am and is one of the preferred ways for the Federal Reserve to estimate inflation over CPI, as the two measures usually move in the same direction. However, that has not been the case lately.
All About PCE Data Released
January witnessed an increase in the current dollar personal income mainly due to increases in government social benefits, income from different assets, and compensation. This increase in benefits was because of high Social Security payments, which reflected a 3.2% adjustment in the cost of living along with more enrollments in the Affordable Care Act.
The PCE price index, which includes the volatile food and energy categories, increased by 0.3% in January compared to the last month, along with an increase in service prices by 0.6%, with the goods prices reduced by 0.2%. There was a rise in food prices by 0.5%; however, this rise was followed by a decrease in energy prices by 1.4%. In the end, it was seen that the PCE price index went up by 0.4%, excluding food and energy.
The PCE price index increased by 2.4% in January compared to the same month last year. Moreover, price increases were seen in service by 3.9%, and a drop of 0.5% in goods prices. Food prices have increased by 1.4%, but energy prices have decreased by 4.9%. In January, excluding food and energy, the PCE price index increased by 2.8% from a year ago.
In January, the real PCE decreased by 0.1% due to a 1.1% drop in spending on goods, specifically in motor vehicles and parts, mainly new light trucks. In addition, spending on services increased by 0.4%, with the largest contribution coming from housing and utilities, especially utilities.
Both the headline and core measures of inflation are still above the 2% target of the Fed for annual inflation, although the core reading on an annual basis is the lowest since February 2021. While the Fed officially focuses on the headline measure, policymakers often give importance to the core measure as it provides a clearer sign of what the long term is going to be.
Stephen Gallagher, chief U.S. economist at Societe Generale, said that the report is as expected, and some of the market’s worst fears thankfully did not come true. He added that the important thing is that they need to see widespread increases like what was being worried about initially.
There was not much reaction from Wall Street regarding the recent PCE data release as the future of the stock market was predicted slightly up, and Treasury yields were a little low.
According to the PCE data released on Thursday by BEA, a lot of consumers were still depending on their savings as the prices remained high. It was reported that the personal savings rate was 3.8% for the month, a bit higher than December but down by one full percentage point from June 2023.
The initial jobless claims reached 215,000 for the week ending on 24 February, up 13,000 from the week before and higher than the expected number of 210,000. However, continuing claims, which lag a week behind, have increased to just over 1.9 million from their initial number of 45,000, going over its expectation of 1.88 million.
It has been reported that central bank officials are thinking of future monetary policy after raising interest rates 11 times, resulting in a total of 5.25 percentage points from March 2022 to July 2023. These hikes were because of the inflation, which had reached its highest point in over 40 years in mid-2022.
The recent statements from officials suggest they plan to start undoing the increases this year. However, the exact timing and scale of these adjustments are still unclear as the data show that the inflation might stay longer than anticipated.
Source: https://www.bea.gov/news/2024/personal-income-and-outlays-january-2024
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