U.S. Inflation Rises Fastest Since June, Key Fed Indicator Says

The Federal Reserve’s key inflation indicator showed a shocking jump in benchmark prices as buyers increased their spending in January.

Core inflation, which includes spending on clothing, transportation and housing but excludes volatile food and energy prices, rose 0.6% from December to January from 0.4% in the previous month, according to the latest personal consumer spending index. spending by the Commerce Department, released Friday. .

The overall PCE also rose 0.6% in January from December, up sharply from 0.2% the previous month.

Both figures were higher than economists had expected, the biggest monthly increase in PCE since June, signaling a setback in the central bank’s spending-cutting efforts faced by ordinary Americans.

“This is a headwind for the Fed,” Jeremy Schwartz, senior US economist at Credit Suisse Group, told The Wall Street Journal. – They have more work to do.

Overall, prices rose 5.4% in January from the same month a year ago, compared to a 5.3% rise in December. Core is up 4.7% year on year.

The alarming figures showed that inflation is still lingering in the US economy, and increased investors’ fears that the Fed will continue to raise interest rates to lower prices. Shares fell in response to the PCE inflation report.

Although inflation has eased in recent months from its peak of 9.1% in the middle of last year, it is still well above the Fed’s 2% target.

“Inflation numbers are still not where we want them to be,” Cleveland Fed President Loretta Mester said in an interview with Bloomberg on Friday.

Mester added that the PCE inflation data “is just in line with the fact that the Fed needs to do a bit more on our discount rate to make sure inflation comes down again.”

The report showed that consumer spending rose 1.8% in January after falling slightly in December.

Investors are counting on a 67.1% chance that the Fed will make another quarter-point hike in its benchmark interest rates when officials meet on March 22. Roughly 33% of investors believe the Fed is accepting a larger half-point hike, according to the CME Group. data.

“Inflation data this morning was higher than expected again this morning and it only reinforces the view that inflation is more resilient and while we have much higher interest rates now, it is still too early for the Fed to say mission accomplished.” said Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance.

Earlier this month, the more popular consumer price index showed that inflation rose 6.4% in January, more than economists had expected.

Separately, the January jobs report showed the US economy added 517,000 jobs while the unemployment rate fell to a 53-year low of just 3.4% despite the Fed’s tightening campaign.