PCE inflation December 2023:

He says the December PCE release should confirm that the month-over-month increase in prices is below the key 0.17% pace. That’s the rate needed over 12 months to get the year-over-year core PCE reading to the 2% growth that the Fed is targeting. However, there are signs that economic growth will likely slow further. In the first half of this year, economists surveyed by FactSet expect GDP growth to slow to 0.8% in the first quarter and 0.6% in the second quarter. The personal savings rate fell to 4% in the fourth quarter, down from the 4.2% rate logged in the third quarter, an indication that some consumers are dipping into savings to fuel spending.

That means rising gas prices have a bigger impact on the overall index than cheaper tomatoes. The CME FedWatch tool currently puts the chance of a quarter-point rate increase at the July meeting at just over 87%, whereas a hold on rates after that for the September meeting is sitting at 68%. This could all change as more data comes in, but it certainly looks like we’ll be seeing the Fed remain hawkish until the results show otherwise.

That’s partly because those services are weighted more heavily in the PCE than the CPI index and higher wholesale costs play a bigger role, Barclays wrote in a research note. This matter if you want to unpack the trends in inflation in different parts of the economy to better understand price changes or focus on very specific price trends for certain https://bigbostrade.com/ items. CPI measures prices for urban consumers, whereas PCE includes all prices, both urban and rural. PCE inflation also includes services for consumers that are paid for by others on behalf of consumers, such as by employers or non-profits. You can see a recent comparison of the series here and the differences have historically been fairly small.

  1. That was in line with what economists had forecast and matched the November reading.
  2. While inflation remains sticky, raising interest rates to fight it is a double-edged sword.
  3. Then PPI is measuring prices for businesses, which is quite a different topic, but certainly related.
  4. This means that if you want to know the monthly price change for peanut butter, it’s there, buried in the pages of the CPI report.

However, he said policymakers will need to stay vigilant and keep rates at a “restrictive” level. In other economic news Thursday, initial weekly jobless claims rose to 218,000, an increase of 7,000 from the previous period though slightly below the 220,000 estimate. However, continuing claims, which run a week behind, surged to 1.93 million, an increase of 86,000 and the highest level since Nov. 27, 2021, the Labor Department said.

When could inflation come down?

For this reason, the BLS also publishes Core CPI, a measure of so-called “underlying inflation,” which intentionally leaves out volatile food and energy prices. Typically expressed as a percentage that indicates a year-over-year rate of growth, the inflation rate gives you a quick and ready measure of the changing purchasing power of consumers and businesses. Measuring inflation is a matter of national importance, and maintaining a steady rate of inflation is one of the two main jobs of the Federal Reserve (the other is promoting full employment). This happens for a few reasons, such as when market participants speculate on energy and food and commodity futures.

It excludes other expenditures that are not paid for directly, for example, medical care paid for by employer-provided insurance, Medicare, and Medicaid. The picture will become all the more complicated heading into 2022, with many government relief programs either expired or about to be. Theaters, restaurants and live shows are already closing their doors to contain the spread, leaving workers temporarily out of jobs and consumers without services to spend their money on. Sign up for our monthly newsletter to get the latest research, expert interviews, and upcoming events from the Cleveland Fed. This can provide a view of spending that accounts for more goods and services actually purchased. Personal consumption expenditures data provide a view of how the economy is faring.

Economists surveyed by FactSet expect the index, which excludes more volatile food and energy costs, to rise by 3% year over year in December. On a month-over-month basis, economists estimate core PCE rose 0.2%. Prices that make up CPI inflation calculations come from the BLS’ Consumer Expenditure Surveys, which assess what real Americans are buying. Approximately 24,000 consumers from around the U.S. are surveyed by the BLS every quarter, and another 12,000 consumers maintain annual diaries of their purchases. The makeup of the basket of goods and services changes gradually over time, following the survived buying habits of consumers, but overall, CPI inflation is calculated from a pretty fixed set of goods and services. All of this suggests that inflation will be a lot harder to tackle going forward.

What the latest PCE inflation report says (and how it impacts you)

Goods spending came in at 0.5%, down from April’s 0.9% figure, with spending on gas and vehicles plunging by 23% each. Inflation has been a nettlesome problem since the early days of the Covid pandemic, when price increases surged to their highest levels since the early 1980s. The Fed initially expected the acceleration to be temporary, then responded with a series of interest rate hikes that took its benchmark rate to its highest in more than 22 years. The release adds to evidence that inflation, while still elevated, is continuing to make progress lower, possibly giving the Fed a green light to start cutting interest rates later this year. An important inflation gauge released Friday showed that the rate of price increases cooled as 2023 came to a close.


And compared with a year earlier, so-called “core” prices climbed 2.9% in December — the smallest such increase since March 2021. Economists consider core prices a better gauge of the likely path of inflation. A measure of inflation closely watched by the Federal Reserve continued to cool in December, the latest sign that price increases are coming back under control even as growth remains solid and the labor market healthy. In particularly positive news, a key gauge of price increases dipped below 3 percent for the first time since early 2021. The personal consumption expenditures price index, commonly known as the PCE price index, is one of the main measures of inflation and consumer spending in the U.S. The Bureau of Economic Analysis (BEA) publishes the PCE price index each month to track spending and inflation.


Even with the $3.2 trillion decline in personal income, the savings rate remained elevated at 14.9%. That increase in inflation came with a sharp deceleration in personal income, which declined 13.1%. Personal income had surged 20.9% in March following the latest round of government stimulus checks.

Christopher Waller, an influential figure on the Fed’s Board of Governors, last week reiterated his view that inflation is on track to return to the Fed’s 2% goal. But Waller cautioned that any decision to cut rates should be “carefully calibrated and not rushed” — remarks that were widely interpreted as downgrading the likelihood of a March cut. In December, the Fed’s policymakers projected that they would carry out three quarter-point rate cuts this year. Late last year, Wall Street traders had bet that the first rate cut would occur in March. The chart below breaks down the differences between the CPI and PCE into these four effects for each quarter starting in 2007. The largest difference tends to be the weight effect, which contributes to bigger changes in the CPI, while the scope effect tends to lessen the difference.

The report also includes the latest calculation for the Personal Consumption Expenditures Price Index (PCEPI), which measures price changes and provides a view of inflation. The Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures index, should show continued triple screen trading system progress on the central bank’s goal of 2% price growth when it’s released Friday. Two components of this basket—food and energy—can see very significant changes in price from one month to the next, depending on seasonal demand and potential supply disruptions at home and abroad.

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