US Federal Reserve's preferred inflation indicator softens in February

(MENAFN) According to the Commerce Department figures released on Friday, the US Federal Reserve's preferred inflation indicator, the core personal consumption expenditures (PCE) price index, softened in February both annually and monthly. The index rose 4.6 percent annually in February, down from a 4.7 percent year-on-year gain in January, and lower than the market expectation of a 4.7 percent increase. On a monthly basis, the index rose 0.3 percent in February, also softening from a 0.5 percent monthly gain in January, and lower than the market expectation of a 0.4 percent increase.

The Commerce Department noted that the increase in current-dollar personal income in February was mainly led by an increase in compensation, particularly from wages and salaries. Private wages and salaries for services-producing industries and government wages and salaries also increased. The USD27.9 billion increase in current-dollar PCE in February reflected an increase of USD25.8 billion in spending for services and an increase of USD2.0 billion in spending for goods. Increases in housing and health care were partly offset by a decrease in food services and accommodations.

In terms of prices, food prices increased 0.2 percent on a monthly basis, while energy prices decreased 0.4 percent in February, according to the figures. The PCE price index, which includes food and energy prices, rose 5 percent annually in February, down from a 5.3 percent year-on-year gain in January, and lower than the market estimates of a 5.1 percent decrease. On a monthly basis, the index rose 0.3 percent in February, down from a 0.6 percent month-on-month gain in January, and also lower than the market estimates of a 0.5 percent increase.

These easing inflation figures suggest that the Fed may soon pause its monetary tightening cycle in interest rate hikes this year. Last year, the US central bank made a total of 425-point rate hikes on seven occasions to combat record-high inflation that had climbed to its highest level in over 40 years by mid-2022. The Fed also made a 25 basis points of a rate hike on Feb. 1, followed by another 25 basis points of hike on March 22 that carried its benchmark funds rate to a range of 4.75 percent to 5 percent.

President Joe Biden said in a statement released by the White House that the US is "making progress" against high prices, but added that "the fight against inflation isn’t over." He noted that the annual inflation is down by almost 30 percent from this summer, amid low unemployment and steady growth. Biden stated that his administration is working to reduce costs for consumers by investing in strong supply chains. He also warned against cutting American manufacturing and other critical programs that American families rely on just to pay for tax cuts for wealthy entities such as Big Pharma and Big Oil, adding that the last thing the American economy needs is "the reckless threat of a chaotic default," and that "those threats must be taken off the table."

In this context, US House of Representatives Speaker Kevin McCarthy has urged Biden to begin negotiations on the nation's debt ceiling to avoid a default. McCarthy sent a letter to the White House on Tuesday, stating that he and Biden had discussed a solution to the debt ceiling two months ago but argued that the president's team has been absent since then, accusing Biden of being "completely missing in action." Although the world's biggest economy hit its debt ceiling on January 19, it has never defaulted on its debt. The US' debt ceiling has been raised 22 times between 1997 and 2022.


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