Despite the fact that prices are still far over average as the Federal Reserve considers its next move on interest rates, the Federal Reserve’s favored inflation gauge decreased in December.
According to the most recent Personal Consumption Expenditures index data from the Commerce Department issued on Friday, consumer prices grew by 5% in December when compared to the same month a year earlier.
The PCE index is considered by the Fed to be a more accurate indicator of inflation than the more popular Consumer Price Index.
The annual rate decreased from 5.5% in November, but it is still running significantly over the Fed’s target inflation rate of 2%. The Fed’s efforts to combat inflation are showing results, as prices rose at their weakest pace since late 2021.
The volatile food and energy costs were excluded from the core PCE index, which saw an increase of 4.4% over the last year and 0.3% from November to December. According to Dow Jones statistics, both numbers were in line with economists’ predictions.
Following the release of the report, stocks rose. The tech-heavy Nasdaq and the broad-based S&P 500 each edged marginally higher, while the Dow Jones Industrial Average increased by about 100 points.
Although inflation has decreased from its rapid rate of rises in the middle of 2022, unusually high costs for basic needs like food and housing continue to cause significant suffering for American people.
Personal expenditure decreased by 0.3% in December after being corrected to indicate a 0.1% decline in November, indicating that consumers have changed their purchasing patterns as a result of rising costs. According to the statistics, Americans reduced their expenditure on things and increased their contribution to the cost of services.
According to Jeffrey Roach, chief economist at LPL Financial, a consumer with uncertain footing was highlighted by sluggish personal spending in November and December.
Roach said, “Faltering growth and a slowdown in inflation would probably prompt the Fed to shift its attention back to growth, the second component of its dual mission.
Investors’ expectations that the Fed would step back from its recent string of supercharged interest rate rises may increase in response to signs of falling inflation.
According to CME Group statistics, the market is presently pricing in a 98% likelihood that the Fed will raise its benchmark rate by only a quarter percentage point when it meets next week.
Fed Chair Jerome Powell has stayed steadfast in his belief that the bank won’t stop raising rates unless there are unmistakable indications that inflation has drastically decreased.
The most recent CPI data release earlier this month revealed that inflation has slowed to 6.5% year over year and dropped by 0.1% month over month.
A study released on Thursday revealed that the fourth quarter’s gross domestic product increased at an annualized rate of 2.9%, a modest down from the third quarter but still more than experts had predicted.
However, economists are still worried that the Fed has gone too far in its battle against inflation and may at some point this year push the economy into a recession.
»December’s Fed-preferred inflation measure eased, while consumer spending declined«