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Market Analysis
Market Reacts Positively as US PCE Inflation Hits Forecast Numbers
In January, the personal consumption expenditures (PCE) price index, a critical measure of inflation monitored by the Federal Reserve, aligned with analysts' projections.
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The personal consumption expenditures (PCE) price index, a key gauge of inflation closely watched by the Federal Reserve, showed expected results in January. The core PCE price index, which excludes the often volatile food and energy costs, rose by 0.4 percent from the previous month and 2.8 percent from a year ago, matching analysts’ expectations. The broader PCE index, including food and energy, also increased by 0.3 percent monthly and 2.4 percent year-over-year, in line with forecasts.
Core PCI Price Index Up 0.4% in January, in line with Expectations
The personal consumption expenditures (PCE) price index, excluding food and energy costs, rose 0.4 percent for the month and 2.8 percent from a year ago, which aligns with expectations. The headline PCE, which includes the volatile food and energy categories, increased 0.3 percent monthly and 2.4 percent on a 12-month basis, aligning with forecasts.
Personal income rose by 1 percent, significantly above the forecast of 0.3 percent. Conversely, spending decreased by 0.1 percent versus the estimate for a 0.2 percent gain. Initial jobless claims totaled 215,000 for the week ended Feb. 24, up 13,000 from the previous period and more than the 210,000 estimate.
The report indicated a shift toward services over goods as the economy normalizes post-COVID-19, with service prices increasing 0.6 percent monthly while goods fell 0.2 percent. The core measures of inflation, both headline and excluding food and energy, remain above the Fed’s 2 percent annual inflation goal. The personal savings rate was noted at 3.8 percent for the month, slightly higher than December but off a full percentage point from June 2023.
Market Reaction
Major U.S. stock indexes edged higher in early trading Thursday, with the tech-heavy Nasdaq Composite adding 140.42 points, or 0.88%. The benchmark S&P 500 rose 0.46%, while the Dow Jones Industrial Average saw a modest 0.13% increase. Small caps outperformed, as the Russell 2000 index climbed 1.54%.
Precious metals gained ground, with gold up 0.77% and silver rising 1.25%. However, oil slipped 0.17% and natural gas tumbled 1.11%. Yields on Treasurys declined across the curve, potentially indicating shifting demand toward safer assets. The U.S. dollar weakened slightly against other major currencies like the euro and yen.
Do you think US inflation will persist through 2024? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
