April 3, 2023 — PCE Inflation Down in February


The Fed’s key inflation gauge, personal consumption expenditures (PCE), was released last week. It is up 0.3 percent in February, below expectations for 0.4 percent, and down from January’s 0.5 percent increase. On a 12-month basis, the PCE increased 4.6 percent, slightly below the level seen in January.

Energy prices were down 0.4 percent, while food and goods prices were up 0.2 percent and services increased by 0.3 percent.  This slowdown seems to indicate inflation will trend lower for the year, giving the Fed some room to delay further rate increases, or even lower rates if a recession hits.

The Fed’s unofficial projections point to one more rate increase in 2023 and no reductions. Following the PCE report, economists are evenly split on whether the Fed will raise rates at their scheduled meeting May 2-3 or not. However, inflation is not expected to fall to the Fed’s targeted 2 percent through much of 2024, and the Fed says bringing prices down is paramount despite the upheaval in the banking sector.