After the PCI index, it is the turn of the PCE index, favored by the Fed, to confirm a rebound in inflation in the United States in February, an increase however largely driven by the rise in prices of energy over the period, while purchasing power emerged as a major theme of the electoral campaign.
According to data released Friday by the Commerce Department, the rise in consumer prices rose to 2.5% year-on-year in February, compared to 2.4% in January, in line with market expectations, but slowed down. at 0.3% over one month, compared to 0.4% the previous month.
The PCE index is the inflation measure favored by the American central bank, the Fed, which wants to bring it down to 2%, the objective it expects to reach in 2026. It is in line with analysts’ expectations, according to the consensus published by MarketWatch.
So-called core inflation, which excludes food and energy prices, is falling, both over one month and over the year.
Over one month, the underlying PCE index fell to 0.3%, compared to 0.5% in January, while over one year it fell to 2.8%, compared to 2.9% a month earlier.
And for good reason: the rebound in inflation is almost exclusively driven by energy prices, the latter increasing by 2.3% in February, while food – one of the main sources of inflation in in recent months — has seen its prices continue to slow down, with an increase of 0.1%.
Nevertheless, “the persistence of underlying inflation and in services, both in January and February, justifies the slightly less accommodating positions” of Fed officials in recent weeks, the head of the Federal Reserve said in a note. Nationwide economist Kathi Bostjancic.
According to her, this confirms that the first rate cut should not take place during the next meeting, scheduled for April 30 and May 1, but rather during the next one in mid-June.
A position fairly widely shared by analysts, according to CME Group’s FedWatch aggregator, since more than 60% are counting on a first drop in mid-June.
The Fed still waiting
The rebound in the PCE index is not in itself a surprise, since it follows the trend observed in the other inflation index CPI, on which Americans’ pensions are indexed, which had also experienced a small rebound over a year but accelerated over a month.
The two indices do not measure exactly the same things, with the CPI index in particular giving a significantly more important place in its evaluation of price developments to the amount of rents than does the PCE index.
But it confirms that a return to the 2% inflation target set by the Fed is not yet within reach.
On Wednesday, a manager of the institution, Christopher Wallen, was even more cautious, estimating that “the data from the last two months have been disappointing”.
While it remains clear, in his eyes, that a rate cut will have to take place at some point this year, he is “not ready to move in this direction until progress materializes”, even considering “reduce the number of drops or postpone them” until next year.
During the last meeting of the Fed Monetary Policy Committee (FOMC), in mid-March, the president of the central bank, Jerome Powell, estimated that inflation still remained too “high” in the United States, and that “the progress made to reduce it is not certain to be maintained.”
Especially since consumption continues to hold up, according to data published by the Commerce Department, since household spending increased sharply again in February, by 0.8% over one month, compared to 0.3% in January. and while the markets were expecting a more moderate increase.
Nevertheless, the rise in income continues to slow down, which should lead to a gradual decline in consumption and a slowdown in the economy, one of the objectives of the sharp rate increase led by the Fed between March 2022 and July 2023 in order to bring inflation back towards its target.