Washington (AFP) – A closely watched US measure of inflation inched towards a Federal Reserve target in February, hitting its highest level in 11 months, the Commerce Department reported Thursday.
The upward movement could feed perceptions the central bank will raise benchmark interest rates more quickly than forecast this year, something that has roiled stock markets in recent months.
Within the numbers, however, there were signs that price pressures remained moderate.
The Personal Consumption Expenditures price index, which tracks the costs of goods and services for individuals, slowed by two tenths of a percentage point from January to 0.2 percent, matching analyst expectations.
Excluding the volatile food and fuel categories, which can see big swings from month to month, the “core” index also fell a tenth to 0.2 percent, which was also in line with economists’ explanations.
Energy and food prices both fell 0.1 percent for the month.
Year-over-year, however, the index rose a tenth to 1.8 percent, up its highest since March of last year.
The core 12-month index also moved up to 1.6 percent, its highest level in 10 months, after having held steady for the prior months at 1.5 percent.
The core 12-month index has remained below the Fed’s two-percent target for nearly six years.
– Tepid consumer spending –
But economists say 2018 is the year that a decade of economic recovery, steady job creation, falling unemployment and shrinking pools of available labor will at last produce rising inflation — the absence of which baffled the Fed last year.
The world’s major economies are growing simultaneously. Meanwhile, US lawmakers have enacted sweeping economic stimulus while oil prices have also begun to recover and trade tensions have fed expectations that prices could soon begin to rise — all factors that point to rising prices.
This month, Fed policymakers raised their rates for the first time this year and anticipate doing so twice more in 2018 and three more times in 2019.
But, with stock prices having raced to vertiginous heights in 2017, fears the central bank could move even faster have roiled markets since a global stock market selloff in early February.
The Commerce Department also reported Thursday that consumer spending had risen by 0.2 percent, or $27.7 billion, growing at a slower rate than personal income, which added 0.4 percent, or $67.3 billion.
Economists say weak consumer spending at the start of the year will likely be a drag on GDP growth in the first quarter.
Chris Low of FTN Financial said the year’s weak start in consumer spending “should alleviate some of the fear inside and outside the Fed of the need for more aggressive monetary policy to counter the effects of stimulative fiscal policy.”