The increase in the personal consumption expenditures (PCE) price index in January, which the US central bank, the Federal Reserve System (Fed) considers important, was 5.4%, higher than last year’s December (5.3%). On a month-over-month basis, it was the highest since June of last year, raising concerns about the Fed’s prolonged rate hike. There is also a possibility that next month the Fed will choose a big step (a 0.5 percentage point increase) rather than a 0.25 percentage point increase as expected.
The US Department of Commerce announced on the 24th (local time) that the PCE price index rose 5.4% year-on-year and 0.6% month-on-month in January. The PCE inflation rate declined to 5.3% in December last year, but rose again to 5.4% in the new year. Moreover, the 0.6% increase rate compared to the previous month is the highest figure since June of last year. The core PCE price index, excluding food and energy, also rose 0.6% from the previous month and 4.7% from the previous year. The market had been predicting a rise of 0.5% and 4.4%, respectively.
The consumer price index (CPI) and producer price index (PPI) fluctuated this month, and the PCE price index in January put a wedge in the reacceleration of US inflation. Right after the PCE report was released at 8:30 am on the same day, all major index futures on the New York Stock Exchange plunged by around 1-2%, and US Treasury yields soared, spreading fear of the Fed in the market. In particular, the Fed rate and the sensitive two-year rate rose to 4.79%, and the market benchmark rate, the 10-year rate, soared to 3.95%.
Unlike the CPI, which looks at prices across the United States, the PCE price index is considered an index that calculates the index from the expenditure items of city residents and reflects actual prices more by reflecting substitute goods when certain items become expensive. The Fed’s target of ‘2% inflation’ refers to PCE prices.
Observations are growing cautiously that the Fed will increase the range of hikes with a big step (a 0.5 percentage point increase) in March as the figure that the Fed considers important is the reacceleration of inflation. According to FedWatch of the Chicago Mercantile Exchange right after the PCE price index was announced on this day, investors raised the possibility of a big step next month to 32.9% through futures trading. It was 2.8% a month ago.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.