Inflation rate at 2.8 percent
US citizens are holding back when it comes to consumption
February 29, 2024, 4:31 p.m
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After US consumers increased their consumption significantly in December, things calmed down again in January. This is good news for the stock markets, because the US Federal Reserve is monitoring this indicator particularly closely for its interest rate policy.
US consumers were no longer quite as willing to spend in January. They increased their consumption by 0.2 percent compared to the previous month, as the Ministry of Commerce announced. Economists surveyed by Reuters had expected growth at this level, after plus 0.7 percent in December.
Private consumption is an important pillar of the US economy, which has recently achieved a surprisingly high rate of growth despite high key interest rates. Gross domestic product (GDP) rose by an annualized 3.2 percent from October to December, following an increase of 4.9 percent in the summer. In 2023 as a whole, there was enough growth of 2.5 percent, after 1.9 percent in 2022 – and this despite the central bank’s sharp interest rate increases, which make loans more expensive.
This central bank wants to keep inflation in check with a tight policy without strangling the economy. It recently stood still and left the key interest rate in the range of 5.25 to 5.50 percent. When the interest rate turnaround planned for 2024 will come about will largely depend on the development of inflation.
Core PCE index keeps interest rate hopes alive
A measure of inflation that the monetary authorities pay particular attention to is the personal spending of consumers. This leaves out the volatile food and energy costs. This so-called PCE core index fell slightly in January, as expected, to an annual inflation rate of 2.8 percent.
The data provided relief on the US stock market. This dispelled fears that inflation could rise excessively again. At the same time, hopes of interest rate cuts soon remain alive with the data. The PCE deflator is the Federal Reserve’s preferred price measure. Weekly labor market data that was weaker than forecast also supports hopes of interest rate cuts soon.