Energy Costs Drive Up Annual US Inflation Rate in Latest Fed Report

The latest data from the US showed that US inflation pressures remained elevated in February, driven by increases in energy costs. The Federal Reserve’s Personal Consumption Expenditures price index. Which is the central bank’s preferred Rate measure, rose 2.5% annually last month.

A 2.3% jump in energy prices contributed significantly to the rise in the annual US rate. The core PCE index that strips out volatile food and energy rose 2.8% year-over-year, slowing slightly from January. On a monthly basis, overall prices grew 0.3% while core prices increased 0.3%, both below forecasts.

Core Inflation Remains Stubborn

While the monthly core inflation numbers provided some relief, the annual rate remained above the Fed’s 2% target. Signaling US Rate pressures have been persistent. Central bankers will be watching future readings closely to determine if inflation is slowing meaningfully. The jump in consumer spending last month to 0.8%, its fastest pace in over a year, also underscores how US Rate is continuing to erode purchasing power.

Consumer price increases have been driven significantly by strong demand and tight labor markets pushing up wages. Even as the Fed’s rate hikes aim to cool activity and slow inflation, US inflation pressures may remain sticky as long as the job market remains robust. Fed officials have signaled they may need to hold interest rates higher for longer to ensure a sustainable drop in Rate back to target levels.