In this morning’s data, the PCE Deflator increased 0.3% in January and was up 2.5% on an annual basis, both as expected. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve for policy decisions, also increased 0.3% in January and grew 2.6% on an annual basis, both as expected. The annual core rate was three tenths below the revised annual figure from the previous month.
Meanwhile, Personal Income grew 0.9% in January, higher than expected. Personal Spending fell -0.2%, less than the slight increase that was expected. The personal savings rate as a percentage of disposable income was 4.6%, which is an increase from the previous month and the highest level since last June.
Overall, both the headline and core PCE deflator were as expected in January. The annual measure for the core rate was less than it was in December, given base effects and the upward revision to the previous month. Personal income increased sizably in January while personal spending decreased. Consumers held back spending after a strong December. This dynamic pushed the savings rate up to levels not seen since last summer.
Given this data, the Federal Reserve likely remains on hold regarding monetary policy, considering the uncertain impact of tariffs and inflation measures that are still above their targets. In addition, the ability of the consumer to remain active and yesterday’s increase in jobless claims both bear watching in the coming weeks.
In all, the yield on the 10-year US Treasury initially ticked slightly higher following the PCE data but is now little-changed and equity futures are higher as we head into the market open.
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