Coverage: Personal spending slows in January

A key measure of U.S. inflation fell in January to its slowest pace since 2016, underscoring concerns about softening price pressures that have confounded policy makers at the Federal Reserve.

Paul Kiernan of The Wall Street Journal had the story:

The Fed’s preferred inflation gauge, the price index for personal-consumption expenditures, fell 0.06% in January from December and was up just 1.37% from a year earlier, the smallest gain since September 2016, the Commerce Department said Friday.

Stripping out volatile food and energy components, the so-called core PCE price index rose 0.06% from December and 1.79% from January 2018, an 11-month low.

Economists surveyed by The Wall Street Journal had expected core PCE prices to rise 0.2% from December.

Tepid inflation and worries about slowing economic growth have pushed the Federal Reserve to significantly alter its policy plans since December, when it raised interest rates and signaled further tightening to come in 2019.

Documents released after the Fed’s meeting last week showed 11 out of 17 policy makers prefer not to move the benchmark rate this year from its current range between 2.25% and 2.5%. Chairman Jerome Powell said at a press conference following the meeting that it isn’t clear, based on recent data, whether the central bank’s next rate change will be an increase or decrease.

Lucia Mutikani of Reuters reported that the economy appears to be slowing:

The report from the Commerce Department on Friday also showed price pressures muted in January, with a measure of overall inflation posting its smallest annual increase in nearly 2-1/2 years. The Federal Reserve last week brought its three-year campaign to tighten monetary policy to an abrupt end.

The U.S. central bank abandoned projections for any interest rate hikes this year after increasing borrowing costs four times in 2018, in a nod to the slowing economy, low inflation and rising headwinds to growth. The economy is losing steam as the stimulus from $1.5 trillion in tax cuts as well as increased government spending dissipates.

“Unless some positive shock hits the economy, by the fall, we are likely to be back to where we were before the tax cut bill was passed,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent as households cut back on purchases of motor vehicles. Spending fell 0.6 percent in December.

Pan Kwan Yuk of the Financial Times reported that the result was below economist estimates:

The core personal consumption expenditures index rose 1.8 per cent in January from a year earlier, according to the US Department of Commerce. That is down from the 2 per cent recorded in December and is the slowest pace of increase since February 2018.

The result was weaker than the median forecast among economists in a Thomson Reuters poll for a 1.9 per cent gain. The monthly increase in core PCE of 0.1 per cent also came in short of market forecast for a 0.2 per cent rise.

The US dollar slipped and the policy-sensitive two-year Treasury note price edged up after the soggier than expected data.

The Fed has made the 2 per cent target for core PCE — which excludes the volatile food and energy components — a key factor when weighing interest-rate moves since the financial crisis.

The latest PCE reading suggests that price pressure remains contained after several months of steady gains last year. It also supports the Fed’s about-face on interest rates last week, when the central bank said it would keep rates on hold this year amid growing concerns over weakening global growth.