(Kitco News) - time highs, as inflation remains a persistent threat to the U.S. economy.
The Core Personal Consumption Expenditures (PCE) index, which excludes volatile goods and energy prices and is the Federal Reserve’s preferred inflation gauge, increased by 0.4% last month compared to January’s increase of 0.3%, the U.S. Department of Commerce reported Friday. Consumer prices came in hotter than expected, as economists were anticipating another 0.3% increase.
Over the last 12 months, core inflation rose by 2.8%, up from January’s revised increase of 2.7%. Economists had forecasted an annual increase of 2.7%.
The gold market is holding on to solid gains in its initial reaction to the hotter-than-expected inflation data. Spot gold last traded at $3,079.20 an ounce, up 0.74% on the day.
The report shows that inflation is becoming embedded in the broader economy even as headline inflation remains relatively stable. The report said that inflation rose 0.3% last month, unchanged from January. In the last 12 months, headline inflation rose 2.5%, in line with expectations.
Consumers also appear to be reacting to the inflation threat as they reduce their spending and increase their savings. The report said that personal income increased 0.8% last month, significantly beating expectations for a 0.4% increase. At the same time, personal consumption increased by 0.4% last month, rising much less than expected.
According to some economists, the latest inflation and consumption data will put the Federal Reserve in a difficult position as inflation pressures rise but economic activity slows.
Some economists are sounding the alarm that inflation pressures will only continue to rise as consumers feel the effects of President Donald Trump’s import tariffs and ensuing global trade war.
“Today’s hotter-than-expected report does little to quell the nervousness around tariffs and their potential impact on the U.S. economy. While a few months do not make a trend, the recent uptick in inflation ahead of next week’s reciprocal tariffs is concerning and could pose a problem for Jerome Powell’s rate cut path later this year,” said Damian McIntyre, Vice President, Portfolio Manager, and Senior Quantitative Analyst at Federated Hermes in a note.
Last week, the Federal Reserve maintained its neutral monetary policy stance as it reiterated that it is in no hurry to ease interest rates as inflation pressures continue to rise. At the same time, the U.S. central bank signaled that it continues to see only two rate cuts this year while markets are pricing in three moves.
