Hotter Than Anticipated

Friday morning brought another update to the personal consumption expenditures (PCE) price index and the latest read was not received well by Wall Street, sending the Dow Jones, S&P 500, and Nasdaq tumbling between one and two percent in the first hour of trading.

That's because PCE is the Federal Reserve's "preferred" gauge of inflation, and it showed price increases burning hotter than anticipated, likely triggering more interest rate hikes that have so far failed to bring inflation down to the Fed's goal of just two percent. 

In Friday's report, January's PCE read showed 0.6 percent month-over-month inflation while estimates called for just 0.4 percent. That's the PCE's largest increase since last June, mirroring inflationary spikes measured by the Consumer and Producer Price Indexes. Year-over-year, PCE inflation hit 5.4 percent, also beating the expected 5.0 percent. On both a monthly and annual basis, PCE showed accelerating inflation at the start of 2023. 

What's more, Friday's PCE release revised December's monthly read up from 0.3 percent to 0.4 percent. That is, inflation is ticking back up and accelerating quickly in the wrong direction.