Summary: US Fed’s favoured inflation measure up in February; in line with market expectations; annual rate unchanged; long-term Treasury bond yields up.
One of the US Fed’s favoured measures of inflation is the change in the core personal consumption expenditures (PCE) price index. After hitting the Fed’s target at the time of 2.0% in mid-2018, the annual rate then hovered in a range between 1.8% and 2.0% before it eased back to a range between 1.5% and 1.8% through 2019. It then plummeted below 1.0% in April 2020 before rising back to around 1.5% in the September quarter.
The latest figures have now been published by the Bureau of Economic Analysis as part of the February personal income and expenditures report. Core PCE prices rose by 0.1% over the month, in line with the generally expected figure but less than January’s 0.2% increase after it was revised down from 0.3%. On a 12-month basis, the core PCE inflation rate remained steady at 1.4% after January’s comparable figure was revised down from 1.5%.
Long-term US Treasury bond yields rose on the day. By the close of business, the 10-year Treasury bond yield had gained 5bps to 1.68% and the 30-year yield had increased by 4bps to 2.39%. The 2-year yield finished unchanged at 0.14%.
The core version of PCE strips out energy and food components, which are volatile from month to month, in an attempt to identify the prevailing trend. It’s not the only measure of inflation used by the Fed; it also tracks the Consumer Price Index (CPI) and the Producer Price Index (PPI) from the Department of Labor. However, it is the one measure that is most often referred to in FOMC minutes.