According to the Commerce Department, Friday’s key inflation indicator showed prices rising at an unprecedented pace in almost 39 years. However, it did not stop consumers spending more aggressively.
Core personal consumption expenditures price index (the Federal Reserve’s primary inflation indicator) rose by 5.2% compared to a year earlier, slightly higher than the Dow Jones 5.1% estimate. The level was at its highest since April 1983.
Incorporating food and energy prices the headline PCE was at 6.1%. This is the highest gain since February 1982.
According to the estimates, the core PCE grew 0.5% monthly, and headline growth was 0.6%.
According to the same report, consumer spending increased faster than anticipated. It rose 2.1% in December compared with the 1.6% forecast. This December’s 0.8% drop in spending was reversed.
This happened despite personal income being flat during the month. That was much better than what was expected to happen of 0.3%. Real disposable or after-tax income decreased 0.5% because of wage gains offset by the end of the child tax credit and an important adjustment to Social Security.
The total amount of personal savings was $1.17 trillion. This translated to a 6.4% interest rate in December 2013.
Separate news brought better than anticipated news. Orders for durable goods increased 1.6% in Jan, against a forecast for 0.8% growth.
Inflation has always been a major concern for markets as prices have continued to rise at their highest levels since the wild price increases of the 1970s and 1980s. The Fed was forced to increase interest rates by a series of severe measures that led to the economic downturn.
The current situation is similar to the previous case. Policymakers have also indicated that they expect hikes, but are hoping for a more controlled tightening. Nearly all officials at central banks have indicated that they plan to increase the rate of interest in March. Markets also expect the rises to occur during the six remaining meetings this year.
“Overall the real economic health appears better than expected, which suggests that Fed will keep up with rate rises, starting in March. The conflict in Ukraine is a major concern. [basis point]Increase less likely,” stated Paul Ashworth of Capital Economics, the chief U.S. economist.
Data released Friday revealed that food and energy prices increased 0.9% in January. The rise in services inflation was slightly less than expected, at 0.4%.
After increasing 1.3% last year, inflation impacted worker wages. Wages and salaries jumped 9.3% to 2021. These costs increased 0.5% more in January than they did the previous month, which is slightly less than the 0.7% rise.
The infusion of capital has helped to keep the demand high for goods.
New orders rose 0.7%, excluding transportation. Orders for ex-defense were up 1.6%