Is Inflation Finally Cooling Again? The Fed’s Favorite Gauge Says So | Global News Avenue

Inflation cooled in January, according to the Fed’s preferred measure for inflation, which contradicted the signal from an earlier official report this month.

The Bureau of Economic Analysis said Friday that the cost of living has risen by 2.5% over the past 12 months, measured by personal consumption spending. This is less than the December annual growth of 2.6%, which is the first decline in inflation volume in four months. The report marks a rare example of two major inflation measures by the government showing the opposite trend in the same month: Consumer price index rises unexpectedly In January, the Bureau of Labor Statistics said earlier this month.

The slowing PCE inflation provides some evidence that inflation is on the trajectory until the Fed is a 2% annualized rate, tending to hover before the pandemic. Inflation has been on a downward path since the post-pandemic pandemic, but progress has been stagnant for several months.

Friday’s reading of benign inflation matches economists’ expectations and could alleviate consumer and investor concerns about the possibility of an accelerated inflation that would keep the Fed from lowering interest rates.

“Core” PCE inflation does not include volatile prices for food and energy, down from 2.6% in the year, down from 2.8% in December and its lowest level since June. Economists and policy makers prefer core measures when assessing inflation because reasons for food and gas prices have nothing to do with long-term inflation trends.

The government’s two major inflation measures, Consumer Price Index and Personal consumption expenditurecalculate different prices in different ways and consider different prices. For example, CPI is more affected by changes in housing costs. These two measures are usually moved roughly in series, but sometimes diverge. The Fed prefers PCE measures and uses core PCE inflation as a benchmark to assess whether inflation runs at a 2% target.

Many forecasters expect inflation Gradually decrease over the rest of the yearproviding some relief to household budgets, which have been squeezed by years of price increases in daily spending. But President Donald Trump’s proposed tariffs on foreign trading partners will begin next week It’s the main wildcardand can push prices to a wide variety of items.