Announced this morning, the PCE Deflator increased 0.3% in February, slightly less than expected and was up 2.5% on an annual basis, one-tenth higher than the previous reading. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve, increased 0.3% in February, as expected. However, the previous month was revised higher to 0.5%. Core rates grew 2.8% on an annual basis, slightly less than the previous month’s revised figure.
Meanwhile, Personal Income grew 0.3% in February, slightly less than expected and normalizing after the strong increase the previous month. Personal Spending grew 0.8% in February, higher than expected and is larger than the increase the previous month. Real Personal Spending, which accounts for inflation, increased 0.4% in February, rebounding from last month’s negative figure. In addition, the personal savings rate as a percentage of disposable income was 3.6%.
Overall, headline inflation data came in slightly less than expected in February, while the core rate was as expected. On an annual basis the headline figure increased slightly from the previous month while the core rate ticked only slightly lower from the revised figure, highlighting the stickiness of inflation in the current environment. In addition, both income and spending grew in February, indicating individuals are still seeing incomes rise and are spending money. As the Federal Reserve navigates its policy in this election year, considering both sticky inflation and the strength of the consumer, how well the economy and corporate profits hold up will be key factors for markets in the months ahead.
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