Core Inflation Rises At Fastest Pace In A Year

The pace of price hikes faced by American households accelerated in January to its fastest in a year, challenging the notion that high inflation is receding.

The personal consumption expenditure price index, known as the PCE price index, rose 0.3 percent in January.

Compared with 12 months ago, the index is up 2.4 percent, lower than the 12 month increase of 2.6 percent recorded in December. Year over year measures of inflation have been falling as the very high figures from the end of 2022 and start of 2023 drop out of the calculation.

The core PCE price index, which excludes food and energy prices, rose 04 percent. That’s four times the downwardly revised 0.1 percent increase for the prior month. Over the past 12 months, the core index is up 2.8 percent, a tick down from the 2.9 percent 12 month gain recorded in December.

That’s the largest monthly increase in core PCE inflation since the beginning of last year.

The monthly core figure annualizes to 5.1 percent. The headline PCE index increased at an annualized rate of 4.2 percent. The annualized rates can be helpful to see how much higher monthly inflation is running than the Fed’s 12-month target of two percent.

The Fed bases its two percent inflation target on the PCE index. It tends to closely track the direction of the better-known consumer price index, although in recent years it has run slightly below the CPI. In January, the CPI increased 0.3 percent for the month and was up 3.4 percent for the year. Core CPI rose 0.4 percent, the same as the core PCE index, and was up 3.9 percent from a year ago.

The PCE index includes some consumer expenses that get excluded from CPI because they are not out-of-pocket expenses, including employer-paid healthcare. PCE also takes into account shifts in consumer purchases that may occur because of price changes, such as households buying lower-grade food products if inflation has pushed prime prices up too much for their budget. CPI is considered a measure of what goods and services cost while PCE measures what consumers and businesses pay for household consumption.

The PCE inflation figures were in line with what Wall Street expected.