PCE Price Index Sees Incremental Growth
The Bureau of Economic Analysis, a division of the Commerce Department, revealed that the personal consumption expenditures (PCE) price index rose by 0.2% last month. This follows a previous report of an unrevised 0.1% decline in November. The 12-month period leading up to December saw the PCE price index increase by 2.6%, matching November’s unaltered gain. Economists surveyed by Reuters had predicted a 0.2% climb in the PCE price index month-over-month, with an annual rise of 2.6%.
Core PCE Price Index Registers Smallest Gain Since March 2021
Excluding the volatile food and energy components, the PCE price index experienced a 0.2% increase in December, following a 0.1% rise in November. The so-called core PCE price index recorded a year-over-year increase of 2.9%, the smallest gain seen since March 2021. This follows a rise of 3.2% in November. Despite the resilience of the economy, the probability of a rate cut in March has fallen below 50% in the financial markets. However, experts still expect a reduction in borrowing costs by June.
June Rate Hold Expected
The upcoming meeting of the U.S. central bank is anticipated to result in the policy rate remaining unchanged within the current range of 5.25%-5.50%. The Federal Reserve has increased its benchmark overnight rate by 525 basis points since March 2022.
Easing Inflation Strengthens Household Purchasing Power
The alleviation of inflationary pressures is enhancing the purchasing power of households, which, in turn, is driving consumer spending and supporting overall economic growth. In December, consumer spending, a key driver of U.S. economic activity, surged by 0.7%, following a 0.4% increase in November. When adjusted for inflation, consumer spending experienced a 0.5% rise in December, mirroring the previous month’s growth. During the last quarter, consumer spending expanded at a robust 2.8% pace, accounting for the bulk of the economy’s 3.3% growth.