US inflation sees moderate rise in February; consumer spending surges

Prices in the United States saw a moderate increase, with the cost of services outside housing notably slowing down in February. The development keeps the possibility of a June interest rate cut from the Federal Reserve on the table.

According to data released by the Commerce Department's Bureau of Economic Analysis on Friday, the personal consumption expenditures (PCE) price index rose by 0.3 per cent last month. This comes after January's data was revised higher to show a 0.4 per cent increase instead of the previously reported 0.3 per cent.

Over the 12 months leading up to February, PCE inflation advanced by 2.5 per cent, slightly up from the 2.4 per cent increase recorded in January. Economists surveyed by Reuters had anticipated a 0.4 per cent gain in the PCE price index for the month and a 2.5 per cent year-on-year rise.

While price pressures are easing, the pace of moderation has slowed compared to the first half of the previous year.

Federal Reserve officials opted to leave the policy rate unchanged at the current range of 5.25 per cent-5.50 per cent during last week's meeting, following a 525-basis-point increase since March 2022.

Market expectations suggest three rate cuts are anticipated this year, with the first one expected in June. Fed Governor Christopher Waller remarked on Wednesday that "there is no rush to cut the policy rate" at present, although he did not rule out potential adjustments to borrowing costs later in the year.

Excluding volatile food and energy components, the core PCE price index saw a 0.3 per cent increase last month, following an upwardly revised 0.5 per cent gain in January. Core inflation in February rose by 2.8 per cent year-on-year, slightly down from the 2.9 per cent increase observed in January. The Fed closely monitors the PCE price measures to assess progress towards its 2 per cent inflation target, with monthly inflation readings of 0.2 per cent deemed necessary over time to achieve this target.

PCE services inflation, excluding energy and housing, saw a 0.2 per cent gain last month after surging by 0.7 per cent in January. Policymakers are closely observing the so-called super core inflation to evaluate their efforts in combating inflation.

Moreover, the report revealed that consumer spending, which drives over two-thirds of economic activity in the US, surged by 0.8 per cent last month after a modest 0.2 per cent increase in January.

(With Reuters inputs)