Inflation continued to fall in January in the United States, although with a rebound over one month, according to the PCE index, the Fed’s preferred measure, while the question of prices is central in the race for the White House. .
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Consumer price inflation fell to 2.4% year-on-year in January, compared to 2.6% in December, as expected, according to the PCE index published Thursday by the Commerce Department.
But over one month, it accelerated, to 0.3% compared to 0.1%. Analysts, however, expected a still somewhat strong increase, and were counting on +0.4%, according to the Market Watch consensus.
The PCE index is the inflation measure favored by the American central bank, the Fed, which wants to reduce its increase to 2%, a target it plans to achieve in 2026.
Inflation is “getting closer to the target”, underlined Rubeela Farooqi, chief economist for High Frequency Economics, not worried about this rebound over one month.
Excluding volatile food and energy prices, so-called core inflation slows slightly over one year, to 2.8% compared to 2.9% in December, but accelerates more sharply over one month, to 0. 4% versus 0.1%.
Another measure of inflation, the Labor Department’s CPI index, published two weeks earlier, had disappointed, its rise slowing much less than expected, and remaining above 3% (3.1%).
First rate cut in June?
Eggs, cars, insurance, housing… The rise in prices has had a serious impact on the wallets of American consumers.
The subject is very lively in the presidential campaign before the November election, which should pit current Democratic President Joe Biden against his Republican predecessor Donald Trump.
The inflation curve is also watched closely by the Fed, which has been fighting against its rise for more than two years. The central bank’s main tool to deal with this was to raise interest rates between March 2022 and July 2023. It pushed them up to the range of 5.25-5.50%, their highest level for 20 years.
This strategy aimed to deliberately slow down economic activity by making credit more expensive, so that households would consume less and prices would stop soaring.
The Fed plans to start lowering rates this year. But its officials have warned that they prefer to wait several months to be certain that inflation is not likely to rebound.
These successive comments had disillusioned the markets, which were dreaming of a first reduction at the next Fed meeting, on March 19 and 20. From now on, they are mainly counting on the meeting in mid-June, according to CME Group’s estimate.
“PCE inflation has not increased as much as other (inflation) measures, … indicating that the Fed could begin the long-awaited rate cuts this spring or early summer” , underlines Robert Frick, economist for Navy Federal Credit Union.
Stock market income
The Commerce Department also specified that household income soared in January, up 1% compared to December, while their spending increased by only 0.2%, compared to 0.7% in December, month during which they were driven by purchases for the end-of-year holidays.
The sharp increase in income is notably due to “solid dividend income which reflects the solid performance of the stock market”, as well as the annual revaluation of federal state benefits – retirement, among others, details Gregory Daco, head economist for EY Parthenon.
This increase was, however, attenuated by an increase in taxes, he explains, “so that disposable income increased more modestly, by 0.3%”, and even “remained stable” after adjusting for inflation. .
“Overall, the data indicates that the economy continues to grow and inflation is gradually falling,” adds Rubeela Farooqi.
Across the Atlantic too, inflation is falling. In France, for example, it fell below 3% year-on-year in February, for the first time in two years, according to data also published Thursday by INSEE.
And the European Central Bank (ECB) is also expected to lower its rates in the coming months.
