Inflation as measured by a metric frequently monitored by the Federal Reserve decreased this month, providing further evidence that a prolonged rise in consumer prices appears to be abating.
The Commerce Department said on Friday that prices grew 5.5% year-over-year in November, down from a revised 6.1% increase in October and the weakest increase since October 2021. Excluding volatile food and energy prices, so-called core inflation rose 4.7% year-over-year. Additionally, this was the smallest increase since October 2021.
Prices increased 0.1% from October to November, following a 0.4% increase the prior month. Core prices rose 0.2%.
Inflation, which began rising a year and a half ago as the economy rebounded from the coronavirus recession of 2020, continues substantially over the Fed’s desired annual growth rate of 2%.
Since March, the central bank has hiked its benchmark interest rate seven times in an effort to rein in inflation.
Higher prices and interest rates may have a negative impact on American consumers. Their expenditure increased by only 0.1% from October to November, and did not increase at all after correcting for inflation.
Rubeela Farooqi, senior US economist at High Frequency Economics, wrote in a research note, “We anticipate a slowdown in household spending in 2023 as a result of additional Fed rate hikes.”
Despite adjusting for inflation, the after-tax income of Americans climbed 0.3% in November despite the fact that taxes were not paid.
The Fed is said to follow the personal consumption expenditures price index, which was released by the Commerce Department on Friday, much more attentively than it does the better-known consumer price index by the Labor Department. November’s year-over-year CPI increase of 7.1% was less than June’s 9.1% year-over-year increase, which was the largest such increase in four decades.
PCE tends to demonstrate a lower inflation rate than CPI. In part, this is due to the fact that rents, which have skyrocketed, carry double the weight in the CPI compared to the PCE.
When inflation spikes, the PCE price index also attempts to account for changes in shopping behavior. Thus, it can detect, for instance, when consumers transfer from expensive national brands to less expensive retail brands.
»According to the Fed’s chosen inflation gauge, prices fell in November«