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The Federal Reserve's preferred inflation gauge eased modestly last month, data indicated Friday, but personal spending figures showed one of the biggest pullbacks in three years, suggesting further weakness in the world's biggest economy.
The Bureau of Economic Analysis's PCE Price Index report for the month of January showed core prices rising at an annual rate of 2.6%, down from the December reading of 2.9% and matching Wall Street's consensus forecast.
Core price pressures, which strip away volatile food and energy components, were up 0.3% on the month, compared with December's 0.2% increase and matching Wall Street's consensus estimate of 0.3%.
Markets focus on the core PCE inflation reading, which the Fed considers a more accurate representation of overall price pressures as it incorporates changes in consumer-spending patterns.
The BEA's headline PCE inflation index quickened to an annual rate of 2.5%, matching Wall Street's estimate and slightly below the 2.6% pace recorded in December. The BEA said prices rose 0.3% on the month, following a 0.3% reading in December.
The BEA also noted that personal incomes for January rose 0.9%, more than double Wall Street's estimate and the 0.3% forecast, while spending slumped 0.2% compared with the 0.7% advance in the prior month.
A slowdown in consumer spending, which was also evident in the Commerce Department's January reading of retail sales, is crucial for an economy that relies on the services sector for around two-thirds of its growth.
"As the PCE index shows inflation moderation and as the labor market continues on solid-footing, we can expect the Fed to stay the course, holding rates in place for the near future," said Elizabeth Renter, senior economist at NerdWallet. "Yes, there are risks to inflation and the labor market on the horizon, but without certainty in whether or how those will play out, they see staying the course as likely the safest bet."
"The data also indicates that consumers were saving more in January, which aligns with the rise in economic pessimism we’ve seen in recent sentiment figures," she added. "People are feeling uncertain about the near-future economy, and are spending a bit more cautiously."
U.S. stocks were little changed following the data release, with futures indicating a 20-point opening bell gain for the S&P 500 and a 235-point advance for the Dow Jones Industrial Average. The tech-focused Nasdaq is called 30 points higher.
Benchmark 10-year-note yields were 2 basis points higher at 4.275% following the data release, while 2-year notes rose 2 basis points to 4.069%.