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The market digested top-tier economic data this week along with a hawkish tone reflected in the minutes from the Federal Reserve’s Open Market Committee meeting on February 1st. Both the headline Personal Consumption Expenditures (PCE) Index and the Core PCE Index (excluding food and energy) accelerated more than expected in January, increasing 0.6% month-over-month. The headline index rose 5.4% and the core index 4.7% year-over-year, exceeding both last month’s increase and consensus expectations. Prices for both goods and services appreciated on a widespread basis. Expenditures on goods were led by motor vehicles and pharmaceuticals, while spending on services was led by rent and food services. The personal savings rate increased to 4.7%, to a seven-month high.

This week’s top tier economic data focused on inflation both at the consumer and producer level. The headline Consumer Price Index (CPI) rose 0.5% in January versus the upwardly revised -0.1% reading in December. Inflation increased 6.4% year-on-year, down from 6.5% in December. Core CPI, excluding the volatile food and energy components, increased to 0.4% in January and 5.6% on a year-on-year basis, decelerating from 5.7% in December. Key factors contributing to inflation in January were housing, food, gasoline, and natural gas. Inflation at the producer level rebounded in January above the consensus of market participants. The Producer Price Index (PPI) jumped 0.7% last month and 6.0% year-over-year bolstered by higher energy costs. Core PPI, excluding the volatile food and energy components, rose 0.5% in January and 5.4% year-over-year. Inflation appears to be stickier than many market participants anticipated and remains above the Fed’s target providing another data point for the Fed to continue to increase the federal funds rate at its next meeting.