Prices edged lower in November based on the Federal Reserve’s preferred tool for measuring inflation.
The core Personal Consumption Expenditures (PCE) price index rose 0.1% in November and was up 3.2% from a year ago, the U.S. Bureau of Economic Analysis reported Friday.
Headline PCE — which does not exclude the food and energy industries — decreased 0.1% during the month, marking the first monthly decline since February 2022. Overall, food prices saw a 0.1% drop in November, while energy prices saw a 2.7% decrease. Additionally, prices for goods dropped 0.7% over the month, offsetting a 0.2% increase in services.
On an annual basis, PCE prices were up 2.6% in November compared to 5.5% a year earlier.
“Adding in the further sharp slowdown in rent inflation still in the pipeline, it’s hard to see any credible reason why the annual inflation rate won’t also return to the 2% target over the coming months,” wrote Andrew Hunter, deputy chief U.S. economist at Capital Economics, per CNBC.
While inflation has trended downward over the last year, Fed chair Jerome Powell has said the committee needs to see more evidence that inflation is sustainably on track to 2% before they feel comfortable making any changes to monetary policy.
Despite several FOMC (Federal Open Market Committee) participants penciling in three rate cuts by the end of 2024, New York Fed president John Williams said the Central Bank is not considering rate cuts at this time.
“We aren’t really talking about rate cuts right now,” Williams told CNBC last Friday. “We’re very focused on the question in front of us, which, as chair Powell said … is, have we gotten monetary policy to sufficiently restrictive stance in order to ensure the inflation comes back down to 2%? That’s the question in front of us.”
While PCE prices hit a 2023 low, the Fed’s job is not finished, according to Gus Faucher, chief economist at PNC Financial Services.
“The Federal Open Market Committee is not yet ready to declare victory on inflation, but the outlook is much better than it was just a few months ago,” wrote Faucher, per CNBC. “The slowing in core inflation opens the door for fed funds rate cuts in 2024; the timing will depend on core PCE numbers over the next few months.”