CPI inflation for February (released a couple of weeks ago) brought the prospect of lower PCE defaltor inflation. It didn’t happen. On a year-over-year basis, PCE inflation barely changed, increasing from 2.52% (January) to 2.54% (February). While the annualized month-over-month rate fell, from 4.12% to 4.01%, our measure of trend rose from 3.06% to 3.38%.
Similarly, core PCE inflation (that is, excluding food and energy) rose in February: the monthly rate from 3.64% (January) to 4.47% (February); the annual rate from 2.66% to 2.79%. Our measure of trend core PCE popped up from 2.72% to 3.37%.
Core measures of PCE inflation have moved away from the FOMC’s 2% target. On the basis of these numbers, it seems unlikely that the Fed will be delivering interest rate cuts in the next few months.
PCE inflation for goods (durable plus non-durable) had been subdued for the past couple of years, actually falling for seven out of the last ten months. Recently, however, goods price inflation has been climbing and is now the highest since 2022. Service price inflation has been high and is climbing, nearly hitting 4% from January to February.
