Topline
Inflation slowed to its lowest level in seven months in January, according to a key measure of price changes released Friday morning, though the Federal Reserve’s favored inflation metric remains stuck above policymakers’ goal.
A shopper at a New York City location of Whole Foods earlier this month.
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Key Facts
The Commerce Department’s personal consumption expenditure index rose 2.5% from January 2024 to last month, matching consensus economist estimates of 2.5% PCE inflation.
And core PCE, which excludes the often volatile price swings of the often volatile price swings of food and energy, rose 2.6% year-over-year, also meeting forecasts of 2.6% core inflation.
Core PCE inflation, which is the Fed’s preferred inflation measure since 2000, was the lowest it’s been since June’s 2.6% last month, though it’s been above the 2% target every month dating back to February 2021.
The headline and core PCE indexes rose 0.3% on a month-to-month basis, matching estimates of 0.3% increases for both metrics.
Big Number
4.6%. That was Americans’ personal saving rate—the percentage of Americans’ disposable income they don’t spend in a given month—in January. That’s the highest saving rate since June, as consumers pulled back on spending.
Key Background
Friday’s inflation report crucially comes as Americans’ expectations for higher inflation over the following year reached their highest level since November 2023, according to the University of Michigan’s consumer survey released last week, as stubborn inflation and the fallout from President Donald Trump’s tariffs shook confidence. The PCE index differs from the other, more frequently cited inflation metric in the consumer price index as it measures how much Americans actually spend in a given month, as opposed to the CPI’s methodology of tracking price changes across a weighted basket of goods and services. For example, the PCE adjusts to consumers’ substitution when an item suddenly surges and Americans opt for replacements, such as buying pancake mix instead of suddenly more expensive eggs – the 15% month-over-month egg price jump caused headline CPI inflation to come in at a hotter-than-expected 3% in January. The PCE index also places more weight on health care prices and less on housing and shelter than CPI. The gold standard core PCE inflation has increased from its multidecade-peak of 5.6% set in 2022, but Fed staff’s median forecasts don’t call for the inflation measure to come down to 2% until 2027. Sticky inflation means interest rate cuts may be sparser than many investors and borrowers hope.
