The core personal consumption expenditures (PCE) price index, a key measure of underlying inflation favored by the Federal Reserve, rose by 0.3% last month, following a robust 0.5% increase in January. This consecutive rise marks the largest back-to-back gain in a year, signaling a steady but moderate uptick in inflation.
While Fed officials may find some comfort in the mild increase in a narrower gauge of services inflation within the report, they remain cautious and seek further evidence that inflation is moving in a sustainable downward direction. Despite this, they are not rushing to cut interest rates.
On the brighter side, consumer spending, which had seen a dip, rebounded and exceeded all estimates. This uptick is attributed to strong wage growth, marking the largest increase in wages in over a year. The report from the Bureau of Economic Analysis indicated that inflation-adjusted consumer spending outpaced expectations, indicating robust economic activity.
The cooling inflation reading offers a welcome relief after earlier data suggested heightened price pressures at the beginning of the year. However, Fed officials remain vigilant and await more concrete evidence of a sustained decline in inflation before making any significant policy adjustments.