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Key US inflation measure hits fresh 4-year record

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The US Federal Reserve’s preferred measure of inflation continued to forge higher in February, beating a four-year record set the previous month, the Commerce Department reported Friday.

The Personal Consumption Expenditures price index rose at an annual rate of 2.1 percent, just beyond the Fed’s two percent target and a pace not recorded since April 2012. The measure has been trending upwards since August.

Citing strong hiring and rising prices, the central bank has raised its benchmark interest rates twice since December and projects two more increases are likely this year.

The less volatile “core” PCE price index, which excludes prices for food and energy, held steady last month, rising at an annual rate of just 1.8 percent, the same as January.

On a monthly basis, upward price pressures were less pronounced. Gains in the price index slowed to 0.1 percent in February, down three-tenths of a point from the prior month, matching analyst expectations. The gain was the smallest in 11 months.

The core index likewise slowed to 0.2 percent, a tenth below January’s increase, also as an analyst consensus had expected.

Personal incomes rose 0.4 percent, or $57.7 billion, in February, far faster than the 0.1 percent gain in spending. Accounting for inflation, so-called real consumption actually fell 0.1 percent, the second straight decline.

Analysts said rising energy costs had helped push price growth above the Fed’s two percent target but that unseasonably warm weather had driven down utility bills and depressed consumer spending.

With seasonal adjustments, this was likely to rebound as soon, however.

Ian Shepherdson of Pantheon Macroeconomics said current trends suggested the annual growth rate for the core PCE price index could hit two percent by May, even though current Fed forecasts did not see this happening until the end of 2018.

“Against this backdrop, and assuming robust employment reports for March, April and May, we’re sticking to our view that the Fed will hike again in June, and then in September and December too,” he wrote in a client note.


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