Personal Consumption Expenditures :
The core personal consumption expenditures price index, which excludes volatile food and energy prices, witnessed a 0.1% increase for the month, marking a 3.2% rise from the previous year, according to a report released by the Commerce Department.
Economists Forecast vs. Actual Figures:
Contrary to economists’ expectations of a 0.1% rise and a 3.3% increase, the core personal consumption expenditures exceeded forecasts for the month and fell slightly short on the yearly figures.
Consumer Expenditures and Income:
The report also revealed that consumer expenditures rose by 0.3% in November, aligning with expectations. Similarly, income experienced a 0.4% increase, indicating that spending remained robust despite ongoing inflationary pressures.
Headline PCE Figures:
Taking into account food and energy costs, the headline personal consumption expenditures index, commonly referred to as PCE, faced a 0.1% decrease for the month, with a year-on-year increase of only 2.6%. This is significantly lower than the peak of 7% observed in mid-2022.
Significance of 12-Month Numbers:
The 12-month figures are crucial as they illustrate sustained progress towards the Federal Reserve’s 2% inflation target.
PCE vs. CPI:
The Federal Reserve favors the personal consumption expenditures index over the more widely tracked consumer price index (CPI) due to its focus on actual consumer spending, rather than solely the cost of goods and services.
Shift in Consumer Appetite:
November’s report indicates a change in consumer preferences, with service prices experiencing a 0.2% increase, while prices for goods declined by 0.7%. This was partially driven by a 2.7% drop in energy prices and a 0.1% decrease in food prices, contributing to the easing of inflationary pressures for the month.
Outlook on Interest Rates:
The Federal Open Market Committee maintained its benchmark overnight borrowing rate between 5.25% and 5.5% during its past three meetings. In its most recent meeting, the committee signified a halt in rate hikes and projected a cumulative reduction of 0.75 percentage points throughout 2024.