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A key indicator of US inflation has gradually declined in good news for households struggling with skyrocketing costs.
This extends a downward trend in inflation in recent months as officials try to cool the US economy, the world’s largest, though it is unlikely to bring quick relief from an aggressive drive to rein in prices.
The US Federal Reserve’s preferred measure of inflation, the personal consumption expenditures (PCE) price index, rose 5.5 percent last month from November 2021, Commerce Department data showed. .
This was slightly below October’s level, but still significantly higher than policymakers’ two percent inflation target.
From October to November, the PCE price index rose 0.1 percent, driven by food prices.
The US Federal Reserve’s preferred measure of inflation, the personal consumption expenditure (PCE) price index, rose 5.5 percent last month from November 2021. The index is a key indicator of inflation and remains significantly higher than the two percent target.
The PCE is the Federal Reserve’s preferred measure of inflation. Inflation rates are cooling but remain worryingly high and analysts expect another interest rate hike in 2023
Analysts warned that interest rates could rise again in 2023 as the Fed maintains a “hawkish policy stance.”
Oren Klachkin of Oxford Economics said: “The recession is not here today, but it will come next year.”
Paul Nolte, portfolio manager at Kingsview Asset Management, added: “Stock markets are wrong because they think the Federal Reserve will stop and eventually cut interest rates later in 2023. And right now, I don’t see it.” . happening soon.
The new data also reveals that spending appears to be ‘softening’ with a drop in car spending, although spending on services shows little sign of faltering so far, said Ian Shepherdson of Pantheon Macroeconomics.
Inflation in the US continues to moderate, rising at an annual rate of 7.1 percent in November for the fifth straight month of declines
Household spending, which has proven resilient in the face of decades-high inflation, rose 0.1 percent from October to November, official data showed.
While there may be Christmas distortions in the latest numbers, “it seems reasonable to expect people to become more cautious,” Shepherdson added.
This is because consumers would have “spent about half of their accumulated pandemic savings and labor market conditions are softening,” he said.
Meanwhile, personal income rose 0.4 percent from October.
“High interest rates and elevated inflation caused consumers to take a breather in spending in November, but income gains and excess savings offered support,” Klachkin said.
Consumer prices have risen this year, exacerbated by supply chain entanglements and Russia’s invasion of Ukraine, prompting the Fed to rapidly raise interest rates in hopes of easing demand.
The central bank has raised the benchmark interest rate seven times this year, with higher interest rates already hitting sectors like housing.
But spending has held up and prices remain stubbornly high.
Inflation can be expected to “retreat” next year, but it should remain well above the Fed’s target and “keep the central bank on a hawkish policy stance,” Klachkin said.
The Federal Reserve raised its benchmark interest rate by half a percentage point last Wednesday (Dec. 14), a day after inflation figures showed a 7.1 percent year-over-year rise in prices.
Fed Chairman Jerome Powell has said he is following price trends in three different categories to better understand the likely path of inflation: goods, housing and services.
The hike was less than the Fed’s last four consecutive jumbo hikes of 0.75 percent.
The latest increase was the seventh this year and set rates at 4.25 to 4.5 percent, the highest in 15 years, further raising borrowing costs for businesses and consumers.
Chairman Jerome Powell, who steers the central bank on a fine line between reining in inflation and triggering a recession, vowed there would be “some pain” for Americans as the Fed tried to cool the market.
“Our general approach is to use our tools to bring inflation down to our 2% target,” Powell said.
Powell said the maximum benchmark interest rate could reach 5 percent. “Restoring price stability will probably require staying tight for some time,” Powell said.
The Fed chair was asked about predictions showing the unemployment rate will rise to 4.6 percent by the end of 2023, up from 3.7 percent now.
“I don’t think it qualifies as a recession,” he said, adding that he still thought 4.6 would qualify as a “strong job market.”
He noted that average GDP growth is expected to be just 0.5 percent for both this year and next, but insisted that the prediction does not qualify as a ‘recession’.
November’s 7.1 percent annual inflation rate was lower than economists had expected and marked the lowest increase in 12 months since December 2021.