Inflation continues to hit US economy, consumers

RALEIGH – The Federal Reserve’s preferred measure of inflation, known as the PCE, increased in January 2023, the latest data released by the government on Friday morning showed.

“The personal consumption expenditures (PCE) price index is the measure of inflation preferred by the Federal Reserve and many economists because it reflects changing consumer buying patterns,” said Dr. Michael Walden, an economist and a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.

According to the report, released by the U.S. Bureau of Economic Analysis, personal income increased by 0.6% in January 2023, rising to $131.1 billion.

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An acceleration of inflation

And the PCE price index also increased by 0.6% in January, the report found. Further, excluding food and energy, the PCE price index also increased 0.6% while a measure known as “real PCE” increased by 1.1%.

That jump, said Walden, was also twice the increase observed between November and December, and that is concerning.

“The concern is that the month-to-month change of 0.6%from December to January was twice that of the November to December change of 0.3%,” said Walden. “Translated, there was an acceleration of inflation from December to January.”

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More rate hikes coming?

Following a much-better-than-expected jobs report in January, this latest news on inflation is showing that the economy is actually strengthening, said Walden.

But whether that’s a one-month rebound or a sign of more economic growth, and potentially more inflation, to come is still uncertain.

“This may be a one-month economic rebound, and if so, the bad news on inflation in January may also be temporary,” said Walden. “But today’s PCE Price Index will raise concerns at the Federal Reserve over how much the inflation rate is really decelerating.”

And that concern may mean the Federal Reserve moves to shift monetary policy at the next meeting of the Federal Reserve Open Market Committee, Walden noted. “Their concern will likely be reflected in more interest rate hikes,” said Walden.