Announced this morning, the PCE Deflator increased 0.3% in February as expected and was up 2.5% on an annual basis. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve for policy decisions, increased 0.4% in February, slightly higher than expected, and grew 2.8% on an annual basis which is one tenth higher than the revised annual figure from the previous month.
Meanwhile, Personal Income grew 0.8% in February, markedly higher than expected. Personal Spending increased 0.4%, recovering from the negative reading the previous month despite being slightly less than expected. The personal savings rate as a percentage of disposable income was 4.6%, which is higher than the previous month and the highest level since last July.
Overall, the headline PCE deflator increased as expected in February, while the core rate was slightly above estimates. The annual measure for the core rate moved slightly higher than it was in the previous month, highlighting inflation measures watched by the Federal Reserve are still above their stated target. Personal income increased nicely in February and personal spending rebounded from last month’s negative figure.
The rebound in spending highlights that consumers were still active in February, despite uncertainty showing up in waning consumer confidence measures amidst tariffs and possible higher prices. The Federal Reserve is likely to remain patient with policy adjustments considering these factors. Since consumers rely on employment to fund their spending, the labor market will be a key factor to watch in the weeks ahead.
In all, the yield on the 10-year US Treasury ticks lower following the report and equity futures are also lower as we head into the market open.
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