Fed's favored inflation gauge shows overall prices fell in November
Add Axios as your preferred source to
see more of our stories on Google.
Shoppers inside an Ulta Beauty last month in New York. Photo: Bing Guan/Bloomberg via Getty Images
The Federal Reserve's go-to inflation index declined 0.1% in November, the first monthly drop in overall prices by this measure in over three years.
Why it matters: The data from the Commerce Department is the freshest sign of cooling inflation that came alongside solid consumer spending and rising income.
- President Biden called the news a "significant milestone," but he added that "work is far from finished."
By the numbers: The Personal Consumption Expenditures price index rose 2.6% from the same month a year ago — edging closer to the 2% sweet spot that Fed officials target. In October, it rose 2.9% from a year ago.
- The index's monthly drop of 0.1% in November came as energy prices plummeted by 2.7% and food prices decreased 0.1%.
- Excluding volatile food and energy prices, the so-called core index rose 3.2% from one year ago. compared to the 3.4% rise in October. For November, the index rose by just 0.1%.
The big picture: Consumer spending rose by 0.2% with strong spending on goods including recreational vehicles, clothing, footwear and furniture. Meanwhile, shoppers splurged at restaurants.
- Excluding inflation, consumer spending was up by 0.3% — a quicker pace than the 0.1% in October.
That spending was supported by rising disposal income, which rose 0.4% — even when accounting for inflation. It picked up from the 0.3% rise in October.
- The personal saving rate — what's leftover after disposable personal income is spent — rose a tick to 4.1%.
Between the lines: Fed chair Jerome Powell hinted earlier this month that the central bank would like to pivot to interest rate cuts, with officials' forecasts signaling at least three cuts next year.
- The data released on Friday provides an ideal backdrop for those forecasts: core PCE rose at a 1.9% annualized rate over the last six months — below the Fed's 2% target.
- And over the past three months, core PCE rose at a 2.2% annualized rate.
- In other words, the war on inflation looks close to won — at least by this measure.
What they're saying: "The case for some modest rate reductions in 2024 linked to inflation approaching the target rate continues to strengthen," economists at Brean Capital wrote in a note.
The bottom line: The report shows the ideal combination for the Federal Reserve: inflation returning to pre-pandemic norms as the economy (for now) remains steady and consumer spending is healthy.
Editor's note: This story has been updated with additional details throughout.
