The pace of price increases facing U.S. households accelerated in January, the fastest in a year, casting doubt on the idea that high inflation is receding.
The personal consumption expenditure price index, known as the PCE price index, rose 0.3% in January.
Compared to 12 months ago, the index is up 2.4%, lower than the 2.6% 12-month increase recorded in December. The year-on-year rate of inflation has declined because the very high numbers from the end of 2022 to the beginning of 2023 are excluded from the calculation.
The core PCE price index, which excludes food and energy prices, rose 0.4%. This is four times higher than last month’s downwardly revised 0.1% increase. The core index has risen 2.8% over the past 12 months, down one notch from the 2.9% 12-month gain recorded in December.
This is the largest monthly increase in core PCE inflation since January of last year.
The monthly core figure is an annualized rate of 5.1%. The comprehensive PCE index rose at an annual rate of 4.2%. Annualization can help determine how much higher the monthly inflation rate is than the Fed’s 12-month target of 2%.
The Fed has set an inflation target of 2% based on the PCE index. Although it has hovered slightly below the consumer price index in recent years, it tends to closely track the well-known direction of the consumer price index. CPI rose 0.3% in January compared to the previous month, and rose 3.4% for the year. Core CPI increased by 0.4%, the same as the core PCE index, and increased by 3.9% year-on-year.
The PCE index includes some consumer spending that is excluded from the CPI because it is not paid out-of-pocket, such as employer-paid health care costs. PCE also takes into account changes in consumer purchases that may occur due to price changes, such as households purchasing lower-grade food when inflation pushes prime prices too far beyond budget. CPI can be thought of as a measure of the cost of goods and services, while PCE measures how much consumers and businesses pay for household consumption.
PCE inflation statistics were in line with Wall Street expectations.
