Prices were almost unchanged in November, but were still above the Federal Reserve's target from a year ago, according to Commerce Department indicators released Friday.
The price index of personal consumption expendituresThe Fed's preferred inflation rate showed an increase of just 0.1% compared to October. This measure showed an inflation rate of 2.4% on an annualized basis, which is still above the Fed's 2% target but lower than the Dow Jones estimate of 2.5%. The monthly reading was also 0.1 percentage point below forecast.
Excluding food and energy, core PCE also rose 0.1% monthly and was 2.8% higher than a year ago, with both readings also 0.1 percentage point below forecast. Fed officials generally believe the core reading is a better gauge of long-term inflation trends because it excludes the volatile gas and grocery categories.
The annual reading of core inflation was the same as in October, and the interest rate increased by 0.1 percentage point.
The readings reflected a slight increase in goods prices and a 0.2% increase in services prices. Food and energy prices also saw an increase of 0.2%. On a 12-month basis, goods prices fell by 0.4%, but services rose by 3.8%. Food prices increased by 1.4% and energy prices decreased by 4%.
Housing market inflation, one of the more “stable” components of inflation over the course of its economic cycle, showed signs of cooling in November, rising just 0.2%.
Income and expenditure figures in this release were also slightly low compared to expectations.
Personal income rose 0.3% after rising 0.7% in October, below estimates of 0.4%. On the spending side, personal spending rose 0.4%, one tenth of a percentage point below forecast.
The personal savings rate dropped to 4.4%.
Futures contracts on the stock exchange remained negative after the report, while government bond yields also declined.
“This morning, sticky inflation seemed a little less entrenched,” said Chris Larkin, managing director of trading and investing at E-Trade Morgan Stanley. “The Fed's preferred inflation rate came in lower than expected, which may alleviate some of the market's disappointment with the Fed's interest rate announcement on Wednesday.”
The report comes just two days after the Fed cut its benchmark interest rate by another quarter of a percentage point to a target range of 4.25%-4.5%, the lowest in two years. However, Chairman Jerome Powell and his colleagues have lowered the expected path in 2025, now down to just two compared to the four indicated in September.
While Powell said Wednesday that inflation has moved “significantly closer” to the Fed's target, he said changes in the projected path of interest rate cuts reflect “expectations that inflation will be higher” in the coming year.
“It's common sense that when the path is uncertain, you go a little slower,” Powell said. “It's a bit like driving on a foggy night or entering a dark room full of furniture. You just slow down.”