Volkswacht Bodensee - US Fed's preferred inflation gauge shows some cause for concern

The personal consumption expenditures (PCE) price index rose 2.5 percent in the 12 months to February, the Commerce Department said in a statement, unchanged from a month earlier. Inflation rose 0.3 percent on a monthly basis.

Both measures were in line with the median forecasts from economists surveyed by Dow Jones Newswires and The Wall Street Journal.

But of greater concern to Fed officials, an inflation measure stripping out volatile food and energy costs rose more than expected, by 0.4 percent month-on-month, and by 2.8 percent from a year ago.

The Fed is attempting to return inflation to its long-term target of two percent. Friday's data suggests policymakers still have some way to go as they also grapple with the effects of trade policy uncertainty.

"They're kind of in wait-and-see mode for awhile," Wolfe Research chief economist Stephanie Roth told AFP. "Our call is that they're going to cut rates because growth is weakening, but they actually need to see a rising unemployment rate first.

"So today probably doesn't really change the narrative that much for them," she added.

- Stop-start tariff rollout -

US President Donald Trump has embarked on a stop-start rollout of country- and sector-specific tariffs, drawing condemnation from allies and warnings from Fed officials that the measures will likely push up prices.

"It looks inevitable that tariffs are going to increase inflation in the near term," Boston Fed President Susan Collins -- who has a vote on the US central bank's rate-setting committee this year -- said Thursday.

Earlier this month, the Fed voted to extend a pause in rate cuts, holding its key lending rate at between 4.25 and 4.50 percent.

Financial markets see a roughly 90 percent chance that the Fed will vote to continue that pause at its next rate meeting in May, according to CME Group.

"The data support our view that downside risks to the economy are emerging, but with inflation heating up, the Fed for now will maintain its wait-and-see approach," Nationwide chief economist Kathy Bostjancic wrote in a note to clients.

Personal income increased by 0.8 percent last month, according to the Commerce Department data published Friday.

And personal saving as a percentage of disposable personal income -- a measure of how much consumers are saving -- jumped to 4.6 percent last month, up from a revised 4.3 percent a month earlier.

The jump in the personal savings rate since the start of the year may be related to consumer confidence, which has deteriorated sharply in recent months, with consumers more likely to save money if they are concerned about where the economy is headed.

Americans are now feeling less optimistic about the US economy, and more concerned about rising inflation, according to fresh data on consumer sentiment published Friday by the University of Michigan.

"UMich isn't the greatest measure, but I think directionally, it tells you something important," said Roth from Wolfe Research.

"And I think it's telling you that consumers are starting to become concerned about the inflation backdrop, and this is the thing that differentiates whether the Fed is able to look through this tariff or not."

K.Sutter--VB