Consumer spending rebounded in February, but inflation is still above target
Americans increased their spending last month after taking a breather in January, while inflation was a mixed bag, new Commerce Department data showed Friday.
As it stood in February, America's economic foundation remained fairly solid. However, the latest data doesn't include the elephant in the room: President Donald Trump's aggressive trade policy.
Recently imposed tariffs on auto imports and a looming slew of other levies stand to ding America's economic engine and drive prices higher, economists warn.
The Personal Consumption Expenditures price index rose 2.5% in February from the year before, holding steady with what was seen in January, according to Commerce Department data released Friday. On a monthly basis, prices rose 0.3%, unchanged from January.
Economists expected that falling energy prices and stabilizing food prices would help keep the disinflationary trend at hand, and that was indeed the case: Energy prices fell 1.1% for the month while food prices eased just slightly to 1.5% from 1.6%.
Forecasts called for the PCE price index to be unchanged from January's preliminary 2.5% rate.
However, one critical barometer — the core PCE index, which serves as a gauge of underlying inflation — came in slightly hotter than economists expected.
Excluding food and energy prices, which tend to be more volatile, the closely watched core PCE price index rose 0.4% for the month and 2.8% from a year before, accelerating from 2.7% in January.
Friday's core PCE data 'suggests that inflation still remains sticky, despite signs of softening in recent months,' Robert Ruggirello, chief investment officer, Brave Eagle Wealth Management, wrote in a note. 'While tariffs are likely to add a one-off shock to inflation, it remains very unclear on how long the tariffs will last, as it's very possible that a future trade deal leads to reduced or even no tariffs.'
Consumer spending rebounded in February, rising 0.4% for the month. In January, spending was weaker than initially reported and fell by 0.3%.
This story is developing and will be updated.
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