Inflation Nation

[Pro-Life]

UPDATE: Inflation highest in more than four years, PCE shows
Today 9:52 AM ET
By Jeffry Bartash, MarketWatch

Consumer spending rises 0.2% in January, but inflation heating up

WASHINGTON (MarketWatch) -- The higher cost of goods such as gasoline pushed U.S. inflation in January to the highest level since 2012, offsetting rising household incomes and raising the odds of an increase in interest rates soon.

A government report that tracks consumer spending (https://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm)showed a modest increase of 0.2% last month, with incomes rising even faster at 0.4%. Economists polled by MarketWatch has forecast a 0.4% gain in spending.

Yet an inflation index known as PCE also jumped 0.4% in January, pushing the increase over the last 12 months to 1.9% from 1.6% in December.

That matches the highest year-over-year level since October 2012.

The PCE index is the preferred tool for the Federal Reserve to measure inflation. The rate of inflation is now close to the Fed's 2% long-term target, and if it keeps moving higher, the central bank could raise interest rates more aggressively.

In premarket trading, Dow Jones Industrial Average futures indicated that stocks were set to open higher.

The rise in inflation over the last year has largely been linked to a rebound in the cost of oil, though the price of staples such as rent and medical have also increased.

The upward trend in inflation, however, could slow soon if oil prices continue to hover in their current range of $50 to $55 a barrel as they have for the past several months.

Another PCE index that strips out food and energy has been more stable. The core PCE index, which rose 0.3% in January, has stuck to a narrow range of 1.6% to 1.7% for the past 13 months.

Consumers, for their part, are still spending at levels that propel the economy forward even as higher inflation eats into their earnings. Although they are spending more to fill up their gas tanks, they are also buying more cars and trucks and other consumer goods.

The figures on spending didn't look as good if adjusted for inflation, though. Real spending fell 0.3% last month to mark the biggest decline since late 2013.

The savings rate was little changed at 5.5%.

-Jeffry Bartash; 415-439-6400; [e-mail]

(END) Dow Jones Newswires