Synopsis:

CIBC expresses concerns over persistent inflation in the US following the release of the latest Core PCE inflation figures. The data, which is closely watched by the Federal Reserve, showed a higher than expected increase for the second month in a row, highlighting the ongoing challenge of returning to the Fed's 2% inflation target. The report also indicated robust consumer spending, particularly in services, which could add to inflationary pressures.

Key Points:

• Inflation Gauge Remains High: Core PCE prices rose by 0.3% month-on-month in February, aligning with expectations, but a revision for January showed an increase to 0.5%, suggesting underlying inflation may be more persistent than previously thought.
• Consumer Spending Rebounds: February saw a significant rebound in nominal consumer spending by 0.8%, surpassing the anticipated 0.5% increase, with real spending also up by 0.4% despite poor weather impacts in January.
• Services Consumption and Saving Rate: Services consumption increased by 0.6% in real terms, pointing to strong demand, while the saving rate dipped to 3.6% from 4.1%, indicating potential concerns about household financial resilience.
• Income Growth Steady but Below Expectations: Personal income growth remained steady at 0.3%, albeit slightly below expectations, potentially influencing future consumer spending patterns.

Conclusion:

The latest Core PCE inflation figures present a mixed outlook for the US economy, with continued robust consumer spending, especially in services, raising questions about the persistence of inflationary pressures. The slight uptick in inflation and strong demand may pose challenges for the Federal Reserve's efforts to guide inflation back to its target level. CIBC notes that while Fed officials have expressed the intention not to overreact to short-term data fluctuations, the recent figures underscore the complexities of achieving a stable inflation rate amidst strong consumer activity.