Core US prices maintain fast pace as personal income growth slows

Chris Papadopoullos
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Fed chair Janet Yellen is watching prices, but she's also keeping an eye on growth (Source: Getty)

Growth in US consumer incomes slowed in February, according to figures released today.

However, inflation is on course to rise toward the US Federal Reserve’s two per cent target this year, the data from the Bureau of Economic Analysis shows.

Total personal incomes rose 0.2 per cent, marking a slowdown from January’s bumper 0.5 per cent. The annual growth rate was down slightly to 3.99 per cent.

Inflation, as measured by the so-called personal consumption expenditures price index, dropped to one per cent from 1.2 per cent.

Yet core inflation, which strips out volatile food and energy prices, maintained January’s rate of 1.7 per cent. January’s core inflation rate was the highest since 2013.

The core inflation figure gives an indication of where inflation is likely to end up once one-off falls in oil and food prices fade out of the annual comparisons used to calculate inflation. A return to the two per cent rate could prompt a second interest rate hike from the Federal Reserve after it raised for the first time since the financial crisis in December.

“The latest acceleration in prices looks broad based, consistent with an economy operating with less capacity than during those previous episodes of rising inflation,” said economist Dario Perkins from Lombard Street Research.

“But at the same time, the decision to postpone rate hikes in February and March was born out of anxiety about the strength of US economy. Until these worries abate, it would be wrong to become too hawkish about Fed policy.”

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