Key Fed inflation measure rose 0.6% in January, more than expected

 The core PCE, the Fed’s preferred measure of inflation, increased 0.6% for the month and 4.7% for the year. Both values are higher than the 0.5% and 4.4% expectations respectively. The PCE including food and energy increased 0.6% and 5.4% for the year compared to 0.2% and 5.3& in December. 

Markets continued to fall after the report with Dow Jones Industrial Average off by about 500 points. The higher inflation also indicates interest rates will need to remain high for longer than expected. Consumer spending rose 0.4% more than the expected value of 1.8% and prices rose 1.1% when adjusted for inflation. Personal income adjusted for inflation also increased by 1.4% which was higher than the 1.2% estimate. Additionally, the personal saving rate increased to 4.7%.

These values all indicate that inflation has increased more to start 2023 than expected. This will likely cause the Fed to continue to raise interest rates into the summer. The Fed has already raised rates by 4.5% since March 2022 and will likely hike rates by an additional 0.25 percentage points at the next meeting. This is because the tighter monetary policy is yet to yield the desired decrease in consumer spending and aggregate demand. Markets will continue to be negatively impacted as long as the Fed continues to raise interest rates. 

https://www.cnbc.com/2023/02/24/key-fed-inflation-measure-rose-0point6percent-in-january-more-than-expected.html