NEW YORK, March 13 (Reuters) – The U.S. Commerce Department said on Friday its Personal Consumption Expenditures Price Index (PCE) rose largely in line with expectations in January, the latest sign that inflation remained relatively well behaved ahead of the war with Iran that began last month.
Friday’s PCE Index rose 0.3% from December, compared with the 0.3% estimate of economists polled by Reuters and the prior 0.4% rise in December. Stripping out the volatile food and energy components, the so-called core PCE Price Index increased 0.4% last month, in line with expectations.
In the 12 months through January, PCE inflation increased 2.8%, compared with expectations for a 2.9% rise. The core PCE Price Index increased 3.1% last month. That was in line with estimates and followed a revised 3% rise in the core inflation in December. The Federal Reserve tracks the PCE price measures for its 2% inflation target.
Meanwhile, the Commerce Department’s second estimate showed gross domestic product (GDP) increased by 0.7% in the fourth quarter, compared with 1.4% growth expected by economists polled by Reuters.
MARKET REACTION:
STOCKS: U.S. stocks rose following the data’s release, with the Dow Jones Industrial Average up 0.6%, the S&P 500 up 0.8% and the Nasdaq Composite up 0.9%.
BONDS: U.S. Treasury yields slipped. The 10-year yield was last down 3 basis points at 4.24%. The two-year yield, which is sensitive to expectations for Fed policy, was down 6 basis points to 3.70%.
FOREX: The dollar index rose 0.2% to 99.95.
COMMENTS:
GARY SCHLOSSBERG, GLOBAL STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, SAN FRANCISCO:
“The January report on personal income, spending and inflation showed inflation-adjusted consumer spending barely keeping pace with the rise in prices, partly due to harsh winter weather, despite solid growth in after-tax incomes.
“The sluggish January pace of inflation-adjusted spending, slippage in the report’s headline inflation measure and news that the first-quarter GDP growth estimate was cut in half (to 0.7%) initially sent stock and bond prices higher on increased hopes for an early rate cut by the Federal Reserve.
“Inflation as measured by the PCE deflator, the report’s price gauge favored by the Federal Reserve, slowed a notch, to 2.8%, but maintained its distance above more benign CPI inflation. Moreover, core inflation climbed to a March 2024 high in accelerating a second straight month, to 3.1%.
“Unexpectedly strong income growth, supported by cost-of-living adjustments at the start of the year, kept pace with a solid gain in consumer spending not adjusted for inflation in lifting the personal saving rate to a six-month high of 4.5%.”
JAMES ST. AUBIN, CHIEF INVESTMENT OFFICER, OCEAN PARK ASSET MANAGEMENT, SANTA MONICA, CALIFORNIA:
“The Fed’s preferred inflation measure is still running hot thanks to services. It certainly doesn’t help the dovish case, but the reality is it’s old news. The effects of skyrocketing energy prices are just starting. If you’re looking for a silver lining it’s that goods prices remain somewhat contained.”
MATT BUSH, U.S. ECONOMIST, GUGGENHEIM INVESTMENTS, NEW YORK:
“The big news is the core PCE inflation number coming in not quite as bad as feared. We’ve had relatively good news on the CPI inflation front in recent months, but core PCE inflation has been quite a bit hotter than the CPI data. And while that was still true with January’s numbers, the January core PCE wasn’t quite as bad as feared. And so I think that’s causing some reaction in rates markets and pricing for the path of Fed policy.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“We have a mixed bag of macro news here. Of course, the downward revision of GDP was much more than expected and that’s not good news, along with the fact that consumer spending was revised downward.
“The good news is that the inflation data measured by the PCE basically in line with expectations. … Inflation remains elevated, sticky and with the possibility of energy prices eventually moving into the pipeline, the Fed is likely to stay on hold for a longer period of time.”
TIM GHRISKEY, SENIOR PORTFOLIO STRATEGIST, INGALLS & SNYDER, NEW YORK:
“Most of today’s economic numbers were generally in line with expectations with the exception of durable goods orders, which was weak and the GDP estimate which was also weak. There’s some concern about the economy from these numbers. These are numbers worth looking at and they question the strength of the U.S. economy. War issues in the Middle East are the most important determinant of financial markets at the moment.”
(Reporting by Stephen Culp, Sinead Carew, Karen Brettell, Chibuike Oguh, Lawrence Delevingne; editing by Colin Barr)
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