The personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, rose 2.5% in January on an annual basis, matching economists’ expectations and providing some reassurance on the heels of hotter-than-expected inflation data earlier this month.
The PCE index and other inflation yardsticks, such as the Consumer Price Index, measure the change in prices over time of a typical basket of goods and services.
By the numbers
The January numbers match forecasts that the PCE rose 2.5% on an annual basis, according to economists polled by financial data firm FactSet.
While inflation has plunged from its recent peak of about 9% in June 2022, it still remains higher than the Fed’s goal of driving it to an annual rate of 2%. Today’s PCE data follows on the heels of the most recent CPI report, which showed that inflation accelerated in January to 3% on an annual basis.
What economists say
The PCE report shows that inflation “rose at a mild pace in January, which offers some relief after a string of economic reports suggesting that inflation is heating up again,” said Key Wealth managing director of fixed income investments Rajeev Sharma in an email.
The recent sticky CPI report had reinforced the Fed’s decision in January to pause on additional rate cuts, but today’s data suggests that the central bank could still introduce more reductions this year. That said, “thoughts of multiple rate cuts for 2025 may be overly optimistic based on today’s data,” Sharma added
Many consumers are also expressing their concerns about stubborn inflation, with a large majority of Americans telling CBS News polling that their incomes aren’t keeping pace with inflation. Some are expressing concern about their ability to save or buy extras, the poll found.
Consumer sentiment is souring amid stubborn inflation and other headwinds, according to some recent measures. “The University of Michigan’s index of consumer sentiment for Democratic-leaning consumers plunged to the lowest since the economic collapse of 2008 in February,” noted Bill Adams, chief economist for Comerica Bank, in an email.
He added, “Consumers who are worried about tariffs, DOGE cuts and fears of deportations seem to be pulling back on discretionary spending.”