US inflation increases moderately in February as consumer spending surges

US prices increased moderately in February while the cost of services outside housing slowed considerably, keeping a June interest rate cut from the Federal Reserve on the table.

The Personal Consumption Expenditures (PCE) Price Index rose by 0.3 per cent last month, the Commerce Department's Bureau of Economic Analysis said on Friday.

Data for January was revised higher to show the PCE price index climbing 0.4 per cent, instead of 0.3 per cent as previously reported.

In the 12 months through to February, PCE inflation advanced 2.5 per cent after increasing by 2.4 per cent in January.

Economists polled by Reuters had forecast that the PCE price index gaining 0.4 per cent on the month and rising 2.5 per cent year-on-year.

Price pressures are subsiding, although the pace has slowed from the first half of last year.

Fed officials last week left the US central bank's policy rate unchanged in the current 5.25 per cent to 5.5 per cent range, having raised it by 525 basis points since March 2022.

Policymakers expect three rate cuts this year and financial markets expect the first rate reduction in June.

Fed Governor Christopher Waller said on Wednesday that “there is no rush to cut the policy rate” right now, but he did not rule out trimming borrowing costs later in the year.

Excluding the volatile food and energy components, the PCE price index increased 0.3 per cent last month, which followed an upwardly revised 0.5 per cent gain in January.

The so-called core PCE price index was previously reported to have advanced 0.4 per cent in January.

Core inflation increased 2.8 per cent year-on-year in February after rising 2.9 per cent in January.

The Fed tracks the PCE price measures for its 2 per cent inflation target. Monthly inflation readings of 0.2 per cent over time are necessary to bring inflation back to target.

PCE services inflation excluding energy and housing gained 0.2 per cent last month after surging 0.7 per cent in January.

Policymakers are monitoring the so-called super core inflation to gauge their progress in fighting inflation.

Consumer spending, which accounts for more than two thirds of US economic activity, jumped 0.8 per cent last month after increasing 0.2 per cent in January, the report also showed.