US inflation moderates, consumer spending supports economy

US inflation moderates: The US prices experienced a moderation in February, with notable deceleration observed in service costs outside of housing and energy, maintaining the possibility of a June interest rate adjustment by the Federal Reserve. 

The Commerce Department's report on Friday also highlighted a notable increase in consumer spending last month, indicative of the economy's resilience.

While the Personal Consumption Expenditures (PCE) price index rose by 0.3 per cent in February, data for January was revised upwards to show a 0.4 per cent increase instead of the previously reported 0.3 per cent. 

Notably, goods prices surged by 0.5 per cent last month, largely driven by a 3.4 per cent rise in energy product costs.

Despite these fluctuations, core inflation increased by 2.8 per cent year-on-year in February, marking the smallest gain since March 2021. 

However, some elements of stickiness persist, with core inflation rising at a 3.5 per cent annualised rate over the past three months.

Consumer spending, a key driver of economic activity, surged by 0.8 per cent in February, representing the largest increase since January 2023. 

Adjusted for inflation, this rebound in consumer spending suggests continued momentum in the first quarter of the year.

However, much of this spending was funded by savings, as income rose by 0.3 per cent after a 1.0 per cent acceleration in January, partly fuelled by a special dividend from Costco Wholesale Corporation. 

With income at the disposal of households declining slightly and the savings rate dropping to 3.6 per cent, the lowest level since December 2022, there are concerns about consumer preparedness for potential labour market weakening.

Overall, despite fluctuations in inflation and spending, the US economy remains resilient, boosted by robust consumer activity and growth prospects supported by inventory data indicating a brisk increase in wholesale and retail inventories.

(With Reuters Inputs)