US inflation continues to rise

Inflation continued to mount in the US in February, official data showed on Thursday, putting further pressure on the Federal Reserve.

According to estimates from the Bureau of Economic Analysis, annual core personal consumption expenditures reached 5.4% in February, compared to 5.2% a month earlier and 1.4% in February 2021. It is the fastest pace since 1983.

On a monthly basis, core PCE - the Federal Reserve’s preferred measure of inflation - rose 0.4%, in line with forecasts and down marginally on January’s 0.5% gain.

Core PCE strips out more volatile elements such as food and energy. When included, headline PCE rose 0.6% month-on-month, or by 6.4% on an annual basis, the highest since 1982.

The BEA also estimated that personal income rose by 0.5% in February, while disposable personal income increased 0.4%.

Real disposable income, however, which takes inflation into account, fell for the seventh consecutive month, down 0.2%.

The BEA said the data "reflected the continued economic recovery and government response to the Covid-19 pandemic.

"In February, government social benefits declined, reflecting the continued winding down of pandemic-related assistance programmes."

Oxford Economics said: "With inflation set to rise even higher, we expect the Federal Reserve to raise rates by 50 basis points in May, and by a total of 200 basis points this year.

"US consumers will face hard choices in the coming months as surging prices of non-discretionary items such as food, energy and shelter pressure their budgets and lead them to pare back some purchases and dip into their savings.

"But robust labour income growth, record levels of household wealth and ample excess savings wroth 13% of GDP mean that consumer spending should remain well supported."

James Knightley, chief international economist at ING, noted: "US personal spending, income, jobs and inflation data all point to a vibrant economy that needs monetary policy to become far more restrictive to get price pressures under control.

"Combined with recent Federal Reserve official comments, this leaves us with the impressive that if the Fed does not hike by 50 basis points [in] May, they never will."

The Fed upped interest rates earlier this month for the first time since 2018 as it looked to tackle soaring inflation.