The Federal Reserve’s preferred measure of inflation fell last month in another sign that price pressures easing in the face of the central bank’s interest rate hikes. Friday’s report from the Commerce Department showed that U.S. consumer prices slid 0.1% last month from October and rose 2.6% from November 2022. The month-over-month drop was the largest since April 2020 when the economy was reeling from the COVID-19 pandemic.
Quick Read
- Recent Trends in U.S. Inflation:
- Indicator: Federal Reserve’s preferred inflation measure.
- Recent Change: Decline in inflation rates.
- Commerce Department Report Details:
- Consumer Price Change: Decrease of 0.1% from October.
- Yearly Increase: 2.6% from November 2022.
- Notable: Largest month-over-month drop since April 2020.
- Core Inflation Rates:
- Excluding Food and Energy: 0.1% rise from October, 3.2% from a year earlier.
- Economic Implications:
- Progress: More than expected against inflation.
- Fed’s Target: Year-over-year inflation moving towards 2%.
- Federal Reserve’s Interest Rate Policy:
- History: 11 rate hikes since March 2022.
- Reduction: Inflation down from four-decade highs in 2022.
- Current Strategy: No rate increases in last three meetings.
- Future Plan: Potential rate cuts in 2024.
- Labor Department’s CPI Report:
- Last Month’s Increase: 3.1% from November 2022.
- Peak: 9.1% year-over-year increase in June 2022.
- Federal Reserve’s Outlook:
- Strategy: Shift from holding rates to lowering them over time.
- Prediction: Rate cuts starting by mid-next year.
- Factors: Labor market, inflation, and growth trends.
- U.S. Economy and Job Market:
- Condition: Remained strong despite rate hikes.
- Hope: Achieving “soft landing” without recession.
- Inflation Gauge:
- Name: Personal consumption expenditures (PCE) price index.
- Peak Inflation: 7.1% in June 2022.
- Preference: Over CPI due to accounting for consumer behavior changes.
- Consumer Spending and Income:
- Spending Increase: 0.2% last month, following 0.1% in October.
- Personal Income Rise: 0.4% last month, slightly up from 0.3% in October.
The Associated Press has the story:
Federal Reserve’s favored inflation gauge tumbles in Nov. as prices continue to ease
Newslooks- WASHINGTON (AP)
The Federal Reserve’s preferred measure of inflation fell last month in another sign that price pressures easing in the face of the central bank’s interest rate hikes.
Friday’s report from the Commerce Department showed that U.S. consumer prices slid 0.1% last month from October and rose 2.6% from November 2022. The month-over-month drop was the largest since April 2020 when the economy was reeling from the COVID-19 pandemic.
Excluding volatile food and energy prices, so-called core inflation last month rose 0.1% from October and 3.2% from a year earlier.
All the numbers show somewhat more progress against inflation than economists had expected. Inflation is steadily moving down to the Fed’s year-over-year target of 2% and appears to be setting the stage for Fed rate cuts in 2024.
After nearly two years of Fed rate hikes — 11 since March 2022 — inflation has come down from the four-decade highs it hit last year. The Labor Department’s closely watched consumer price index was up 3.1% last month from November 2022, down from a 9.1% year-over-year increase in June 2022.
Encouraged by the progress, the Fed has decided not to raise rates at each of its last three meetings and has signaled that it expects to cut rates three times next year.
“A sustained easing in price pressures will support a shift in the (Fed’s) policy stance next year, from holding rates steady to lowering them over time,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “”The exact timing will depend on how the labor market, inflation and growth will evolve next year. Based on our forecasts, we expect the Fed to start cutting rates by the middle of next year.”
Despite widespread predictions that higher rates would cause a recession, the U.S. economy and job market have remained strong. That has raised hopes the Fed can achieve a “soft landing” — bringing inflation to its 2% year-over-year target without sending the economy into recession.
The U.S. inflation gauge the Commerce Department issued Friday is called the personal consumption expenditures (PCE) price index. It showed year-over-year inflation peaking at 7.1% in June 2022.
The Fed prefers the PCE index over the Labor Department’s CPI in part because it accounts for changes in how people shop when inflation jumps — when, for example, consumers shift away from pricey national brands in favor of cheaper store brands.
Friday’s report also showed that consumer spending rose 0.2% last month after rising 0.1% in October. Personal income rose 0.4% last month, a tick up from 0.3% in October.
