Inflation was slightly eased in January as concerns over President Donald Trump’s tariff plans accelerated, according to a Commerce Department report on Friday.
The Federal Reserve’s priority inflation measure, the Personal Consumption Expense Price Index, rose 0.3% for the month to show an annual rate of 2.5%.
Excluding food and energy, core PCE also rose 0.3% a month, at 2.6% a year. Fed officials are following core measurements more closely as a better indicator of long-term trends. The 12-month core major showed a step back from the 2.9% level that was revised upward in December. Headline inflation has been eased by 0.1 percentage points.
All the numbers match Dow Jones’ consensus estimates, possibly putting Chairman Jerome Powell and his colleagues on hold for the time being on interest rates.
Joserasco, Americas Chief Investment Officer at HSBC Global Private Banking and Wealth Management, said the inflation report was “good, but we’re not done.” “So, I think Powell, a careful patient, is going to continue playing, and he will wait, as if I’d call him.”
Elsewhere in the report, the number of income and spending has shown some surprises.
Personal income increased significantly more sharply than expected, up 0.9% per month compared to expectations of an increase of 0.4%. However, higher income did not translate into expenditures, down 0.2% against a 0.1% gain forecast.
Personal savings rates also rose to 4.6%.
Stock market futures were pointed out higher following the report, but the Treasury yields were pretty much lower.
The report is as Fed policymakers weigh the next move in interest rates. Over the past few weeks, authorities have largely hoped that inflation will continue to decline. But they show that they want more evidence that inflation is back to its 2% target sustainably before lowering interest rates further.
Product prices rose 0.5% that month, boosted by a 0.9% increase in cars and parts and a 2% jump in gasoline. Services increased by just 0.2%, while housing increased by 0.3%.
Following the report, Futures Traders slightly increased its chances of a percentage point rate reduction for the June quarter, according to CME Group’s FedWatch Gauge. The market expects two cuts by the end of the year, but the possibility of a third cut has increased recently.
The public closely follows the consumer price index released in the month by the Bureau of Labor Statistics, but the Fed prefers the PCE scale because it is on a broader basis, adjusts for changes in consumer behavior and has a much more emphasis on housing costs.
The January CPI showed inflation rates for all items, 3% and 3.3% in the core.
