Is the Federal Reserve’s Preferred Measure of Inflation Set to Fall?

Market Questions is the FT’s guide to the week ahead

by Jennifer Hughes, Arjun Neil Alim, and Ian Smith
FT

A surprise rise in January consumer price inflation sent shivers around US markets earlier this month. Next week will see that mood tested with the release of the Federal Reserve’s preferred measure of price growth.

Core inflation, as measured by the consumer price index, rose to 3.3 per cent in January on a year earlier, above expectations of a 3.1 per cent rate, leading investors to scale back their bets on interest rate cuts this year. A sharp rise in the cost of eggs, as farmers fight an outbreak of avian flu, was a big driver of the surprise reading.

But while the personal consumption expenditures index, which uses a different methodology, is expected to show prices rising 0.3 per cent month-on-month, up from a rate of 0.2 per cent, according to a poll by Reuters, the annual rate is expected to fall to 2.6 per cent from 2.8 per cent.

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