Personal income and expenditures dropped after being adjusted for inflation in January; disposable personal incomes fell 0.2% on an inflation-adjusted basis; real personal consumption expenditures fell 0.3%. The data also include slight upward revisions to previous months and suggest the consumer entered the year on firm footing.
The PCE (personal consumption expenditures) index, the Federal Reserve’s favored measure of inflation, rose 0.4% in January, double the 0.2% rise in December. Higher energy prices were the primary reason for the acceleration. That is something the Fed has been anticipating; the PCE index is now at 1.9% on a year-over-year basis, which is about as close as we can get to the Fed’s 2% target.