Another indication that a protracted rise in consumer prices may be slowing down is the Federal Reserve’s closely watched measure of inflation slowing last month.
According to the Commerce Department’s report released on Friday, prices increased 5.5% in November compared to a year earlier, which was less than the revised 6.1% increase in October and the lowest gain since October 2021. So-called core inflation, which excludes volatile food and energy prices, increased by 4.7% from the prior year. Additionally, it was the smallest growth since October 2021.
Prices increased by 0.1% from October to November on a monthly basis after increasing by 0.4% in October. Core costs increased by 0.2%.
The rate of inflation, which started to soar a year and a half ago as the economy recovered from the coronavirus recession of 2020, is still significantly higher than the 2% annual growth rate that the Fed prefers to see.
In an effort to control consumer prices, the central bank has increased its benchmark interest rate seven times since March.
American consumers may be feeling the effects of higher prices and borrowing costs. After accounting for higher prices, their spending did not increase at all and only increased by 0.1% from October to November.
As the Fed raises rates further in 2023, “we anticipate a slowdown in household spending,” wrote Rubeela Farooqi, head of US operations at High Frequency Economics, in a research note.
However, even after taking inflation into account, Americans’ after-tax income increased 0.3% in November.
The personal consumption expenditures price index, a measure of inflation released by the Commerce Department on Friday, is thought to be monitored by the Fed even more closely than the more well-known consumer price index released by the Labor Department. In contrast to June’s 9.1% year-over-year increase, which was the largest such increase in four decades, the CPI increased by 7.1% in November compared to a year earlier.
The PCE index typically displays a lower rate of inflation than the CPI. That’s due in part to the fact that rents, which have increased dramatically, account for twice as much of the CPI as they do of the PCE.
The PCE price index aims to take into account adjustments in consumer behavior brought on by increases in inflation. It can therefore record, for instance, when customers switch from expensive national brands to less expensive store brands.
What do you think of that inflation gauge? Please let us know in the comments.
