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Core Inflation Matches Expectations, Dollar Stable

The Federal Reserve’s preferred inflation measure decelerated as expected in February, leaving central bank policy expectations largely unchanged. Data released by the Bureau of Economic Analysis this morning showed the core personal consumption expenditures index rising 0.3 percent in February from the prior month, but January’s number was revised higher to 0.5 percent, bringing the three-month annualized pace up to 2.6 percent – still within the central bank’s target range but headed in the wrong direction. On a year over year basis, base effects saw core price growth stabilising at 2.8 percent, the same as in January, and closely aligned with consensus estimates.

The overall personal consumption expenditures index was up 0.3 percent from the prior month, 2.5 percent higher than a year ago. Personal income rose 0.3 percent month-over-month, slowing from January’s 1.0-percent pace as cost-of-living adjustments washed out of the data. Inflation-adjusted household spending rose 0.4 percent, accelerating from 0.1 percent in the prior month and topping expectations as stronger auto sales lifted overall expenditures.

Jerome Powell’s favoured “supercore” inflation measure – core services excluding housing rents – climbed 0.5 percent month-over-month in February, down slightly from 0.6 percent the prior month.

Fixed income and equity exchanges are closed in the US and most other major economies, making it difficult to assess the impact on market pricing. The dollar is pushing very modestly lower in thin liquidity conditions, suggesting that a weak relief rally is unfolding across currency markets. Changes in direction remain possible ahead of next week’s open: Chair Powell is scheduled to speak later this morning at an economics and monetary policy conference put on by the San Francisco Fed.

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