A measure the Federal Reserve watches closely to gauge inflation rose more than expected in January, indicating the central bank has more work to do to bring down prices.
The personal consumption expenditures price index excluding food and energy increased 0.6% for the month, and was up 4.7% from a year ago, the Commerce Department reported Friday. Wall Street had been expecting respective readings of 0.5% and 4.4%. The core PCE gains were 0.4% and 4.6% in December.
Including the volatile food and energy components, headline inflation increased 0.6% and 5.4% respectively, compared to 0.2% and 5.3% in December.
Markets fell following the report, with the Dow Jones Industrial Average off around 500 points in morning trading.
“This morning’s strong inflation data continued the recent spate of market-unfriendly news. This could keep the policy rate higher for longer than the market had hoped, which in turn will likely pressure earnings,” said Matt Peron, director of research at Janus Henderson Investors. “While we do see signs that inflation will eventually moderate, higher rates for longer will take a toll.”
Consumer spending also rose more than expected as prices increased, jumping 1.8% for the month vs. the estimate for 1.4%. Adjusted for inflation, prices rose 1.1%.
Personal income adjusted for inflation increased 1.4%, higher than the 1.2% estimate. The personal saving rate also was up, rising to 4.7%.
All of the numbers suggest inflation accelerated to start the new year, putting the Fed in a position where it likely will continue to raise interest rates. The central bank has pushed benchmark rates up by 4.5 percentage points since March 2022 as inflation hit its highest level in some 41 years.
“Clearly, tighter monetary policy has yet to fully impact consumers and shows that the Fed has more work to do in slowing down aggregate demand,” said Jeffrey Roach, chief economist at LPL Financial. “The Fed may still decide to hike by 0.25 [percentage points] at the next…
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