Washington (United States) (AFP) – The US Federal Reserve’s preferred inflation gauge came in slightly lower than expected in January, registering 2.8 percent growth over a year ago, according to data released Friday ahead of a key central bank rate-setting meeting next week. The United States has seen stubbornly high inflation since the pandemic, with households battered by years of higher-than-expected prices.
Affordability is a key political issue for US President Donald Trump, who has claimed prices are falling even as consumers continue to complain of the high costs of basics. Economists surveyed by Dow Jones Newswires and the Wall Street Journal had expected the Personal Consumption and Expenditures (PCE) price index to remain unchanged from December’s figure of 2.9 percent. Core PCE, which excludes volatile energy and food prices, rose by 3.1 percent, its highest level since March 2024.
Friday’s PCE figure for January was delayed due to a US government shutdown last year. As such, it does not reflect oil price surges — and their associated inflationary effects — sparked by the US-Israel war on Iran. Analysts warned of more inflation to come due to the conflict that has seen regional energy infrastructure damaged and Iran virtually block the crucial Strait of Hormuz. “The inflation trajectory will only steepen in the coming months to around 4.5 percent, with gasoline prices set to climb to $3.75 on average nationally, a spike in diesel and fertilizer prices, and rising prices in other wide-ranging commodities,” said Nationwide Chief Economist Kathy Bostjancic.
PCE differs from Consumer Price Index (CPI) inflation data in that it covers a broader range of expenses, including those paid on behalf of consumers such as health care insurance premiums paid by employers. The US Federal Reserve prefers the PCE as a gauge when deciding monetary policy for this reason. The US service sector, key to the economy, showed a particular increase in prices, with the PCE price index for services rising by 3.5 percent in January year-on-year, the data showed. By comparison, PCE inflation for goods was 1.3 percent.
The US central bank’s key interest rate setting committee meets next week, with analysts warning it will have to balance its dual mandate of keeping inflation near two percent while also addressing labor market concerns. The US labor market has shown weakness in recent months, with unemployment ticking up in February. On Friday, there was more bad news, with new data showing the US economy grew at a significantly slower pace than initially estimated for the final months of 2025.
Trump’s political opponents seized on Friday’s inflation figures to criticize his economic policies, which have included the sweeping imposition of trade tariffs, whose impact are increasingly passed on to consumers. “Donald Trump’s chaotic tariffs and failed economic agenda continue to drive up costs for American families. Trump claims that he ‘defeated’ inflation, but today’s data shows that it is higher than when he was sworn into office,” said Democratic Senator Elizabeth Warren. The White House did not immediately comment on the latest inflation figures.
© 2024 AFP
