The Federal Reserve’s key inflation rate showed price pressures were tamer than expected in February, as consumer spending softened.
The overall personal consumption expenditures, or PCE, price index rose 0.3% on the month and 5% from a year ago, easing from a downwardly revised 5.3% in January.
Personal spending rose 0.2% in February after January’s upwardly revised 2% jump. Adjusted for price increases, goods spending and services spending both dipped 0.1%.
The Fed typically emphasizes the core PCE inflation rate. Yet with goods-price pressures abating, as demand and supply chains normalize, and housing costs expected to follow later this year, Fed chair Jerome Powell has honed in on core nonhousing services prices as the key to the inflation outlook. That’s because prices of services from haircuts to health care to hospitality are closely linked to wages, generally the biggest cost input.
In February, core PCE services prices ex-housing rose 0.3% on the month, down from 0.5% in January and the smallest increase since July. That left the annual inflation rate for core nonhousing services at 4.6%.
Health care prices rose a tame 0.2% and education 0.1%, while air transportation costs fell 0.7% on the month. Still, wage pressures are putting upward pressure on personal care services (up 0.8%), food services (0.5%) and recreation services (0.9%).