U.S. consumption and inflation data released on Friday, February 24, 2023, indicated Personal Consumption Expenditures (PCE) price index for January rose 5.4% from a year earlier, suggesting that inflation is not falling as rapidly as investors have been hoping.
In January alone, prices were up 0.6% from the prior month, - the fastest pace of increase since last June, and a higher monthly gain from December’s increase of 0.2%. Excluding food and fuel prices, both of which jump around a lot, the price index climbed by 4.7 percent in the year through last month, also more than expected by economists in a Bloomberg survey.
All major indexes marked a losing week on February 24. The S&P 500 declined 2.7% scoring down its worst week of 2023 so far. The Dow dropped by nearly 3%, its fourth straight losing week. The tech-heavy Nasdaq closed the week 3.3% lower.
There was some good news too. Consumer spending and personal incomes rose 1.8% and 0.6% respectively last month, according to the report. Consumers also put more in their piggy banks: the individual savings rate increased by 0.2 percentage points to 4.7% in January.
“I think we can’t just try and make excuses for the consumer: The consumer is more resilient than initially thought, and households are still spending relatively freely as of January,” Gregory Daco, EY Parthenon chief economist, told CNN Business in an interview.
Despite accelerated inflation, the labor market has remained strong as January’s report showed a whopping increase of 517,000 jobs. The continued resilience is somewhat contrary to the Fed’s efforts, as ongoing shortages of labor continue to apply upward pressure on wages.
“Brisk spending growth and faster price increases for both core goods and supercore services spell bad news for inflation. With supply-chain bottlenecks largely eased, demand has been driving inflation lately. If that trend is sustained, the Fed may have to hike rates beyond the 5.25% implied by December’s,” wrote Bloomberg analysts in a Summary of Economic Projections.