Prices in the United States increased modestly in February and the cost of services other than the housing sector began to slow significantly. This indirectly preserves the possibility of interest rate cuts in June by the Federal Reserve.
The personal expenditure price index (PCE) rose 0.3% last month, according to the Commerce Department, Bureau of Economic Analysis on Friday. Data for January has been revised upward to show the PCE price index rose 0.4% versus 0.3% as previously reported.
In the 12 months to February, PCE inflation rose 2.5% after rising 2.4% in January. Economists polled by Reuters forecast the PCE price index to rise 0.4% on the month and rise 2.5% year-on-year.
The data developments suggest that price pressures are easing, although this development has slowed from the first half of last year.
Fed officials last week left the US central bank's policy rate unchanged at its current range of 5.25% to 5.50%, after raising it by 525 basis points since March 2022.
Policymakers expect three interest rate cuts this year. Financial markets expect the first rate cut in June. Fed Vice Governor Christopher Waller said on Wednesday there was "no need to rush to cut interest rates" at the moment, but he did not rule out cutting borrowing costs later this year.
Excluding volatile food and energy components, the PCE price index rose 0.3% last month. This was followed by an updated 0.5% increase in January. The previously stated core PCE price index rose 0.4% in January.
Core inflation increased by 2.8% year-on-year in February after rising 2.9% in January. The Fed is tracking PCE price measurements of their 2% inflation target. A monthly inflation reading of 0.2% over time is needed to bring inflation back to target.
PCE services inflation excluding energy and housing factors rose 0.2% last month after surging 0.7% in January.
Consumer spending, which represents more than two-thirds of US economic activity, rose 0.8% last month after rising 0.2% in January, the report also showed.
