Fed’s preferred inflation measure rises more than expected in February

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The Federal Reserve’s preferred inflation gauge rose more than forecast in February, while consumer spending disappointed, underscoring concerns stagflationary trends are emerging in the US economy.

The core reading of the personal consumption expenditure (PCE) price index, was up 2.8 per cent in February from 12 months ago, according to Bureau of Economic Analysis data released on Friday.

Economists expected the index, a measure of inflation preferred by the Fed that strips out volatile items such as food and energy, to be up 2.7 per cent year-on-year, unchanged from January’s upwardly revised level.

The main PCE index, which the Fed also closely monitors, rose 2.5 per cent last month, in line with a 2.5 rise in January and economists’ forecasts. The central bank targets a 2 per cent inflation rate, and has struggled to meet that goal since supply constraints during the pandemic sent prices soaring.

Personal income jumped 0.8 per cent in February from the previous month, from a 0.7 per cent increase in January and outstripping expectations for a 0.4 per cent rise. However, consumption on an adjusted basis rose 0.4 per cent last month, a reversal from January’s 0.3 per cent decline, but not as strong as the 0.5 per cent increase economists pencilled in.

The data comes at a time when investors and economists are increasingly concerned that Donald Trump’s sweeping tariffs will slow economic growth and increase inflation. Recent surveys have shown that consumer sentiment has darkened markedly in recent months, with Americans increasingly worried about higher prices and lower job and income prospects.

This is a developing story