The latest Personal Consumption Expenditures (PCE) report showed that headline inflation was in line with estimates, rising 0.3% from January to February and 2.5% year-over-year. However, the core PCE rate – the Fed’s preferred measure that strips out volatile food and energy prices – was hotter than expected, up 0.4% from the prior month and 2.8% year-over-year, still stubbornly above the Fed’s 2% target.
Costs for utilities, healthcare, and computer software all rose more than anticipated, contributing to the elevated inflation reading. Shelter costs were a bright spot, as they continued to catch up with softer real-time rental data compared to the more elevated government figures seen previously.
What’s the bottom line?
The trend of annual core inflation raises concerns, particularly as it’s assessed on a rolling 12-monthbasis. This means the total of the past 12 monthly inflation readings will determine the year-over-year rate. Looking ahead, lower readings for April through December 2024 could prove challenging to bring inflation back to the Fed’s 2% target if they are replaced by higher numbers as the year progresses.
Also worrying was lower-than-expected consumer spending in the report. Combined with sticky inflation and record-high credit card debt nationwide, this is adding to fears of an economic slowdown.