The Federal Reserve’s preferred inflation metric, Personal Consumption Expenditures (PCE), met projections for January.Headline PCE rose 0.3% from December, with the year-over-year rate falling from 2.6% to 2.5%. Core PCE, which excludes foodand energy price fluctuations, also increased 0.3% monthly, while the annual rate fell from an upwardly revised 2.9% to 2.6%,reaching one of the lowest levels in four years.
What’s the bottom line? A key driver in progress toward the Fed’s 2% inflation target is shelter costs, which comprise 18% of CorePCE. While shelter costs in PCE have been elevated when compared to more real-time rental data from places like ApartmentList and CoreLogic, they have started to align more favorably in the government’s report. As PCE better reflects softer real-timerental trends, this should contribute to a decrease in annual inflation readings.
