A Key Inflation Gauge Hovers Above Fed’s Target

The Fed’s preferred inflation gauge climbed 2.5 percent in the year through February, in line with economists’ expectations.

The latest reading of the Federal Reserve’s favorite inflation gauge was in line with economists’ expectations, as price increases hovered above the central bank’s target even after months of cooling.

The Personal Consumption Expenditures inflation measure climbed by 2.5 percent in February compared with a year earlier, according to a report released by the Commerce Department on Friday. Economists in a Bloomberg survey had expected an increase of that size, a tick higher than the rise of 2.4 percent in January.

The Fed officially targets that measure as it tries to achieve 2 percent annual inflation, so the latest reading, while widely anticipated, is evidence that inflation still has farther to fall. The fresh reading is unlikely to shake Fed officials from the cautious and patient stance they have taken in recent months as they contemplate when and how much to cut interest rates this year.

The report’s details underscored that inflation continues to moderate, even if the process is bumpy. A closely watched measure that strips out volatile food and fuel prices for a clearer reading of underlying inflation climbed 2.8 percent, in line with what economists had expected for that “core” index and slightly cooler than the previous month. And on a monthly basis, inflation cooled slightly.

The latest inflation readings are much milder than the highs reached in 2022, when overall inflation peaked at 7.1 percent and core at nearly 5.6 percent on an annual basis.

“It reinforces that inflation is on its way down,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, explaining that he thinks Friday’s report will keep the Fed on track for a rate cut in June. “I don’t think they’re going to come out and change their tone; they don’t really need to.”