USA (Washington Insider Magazine)— Finally, prices started to fall in November, After three-plus years of prices steadily and sharply rising month after month. Prices fell every month for the first time since April 2020, according to a closely watched report by the Commerce Department on Friday.
US inflation took further backsteps in November, and consumer spending persisted to improve expectations.
November’s Personal Consumption Expenditures price index, a comprehensive measure of prices US households spend for goods and services, declined 0.1% from the month before, fetching the annual inflation rate to 2.6%.
It’s the first time the PCE index has been reduced monthly since the early stages of the Covid-19 pandemic. Annually, it’s marked progress from a 2.9% rate in October and the 40-year high of 7.1% notched in June 2022. According to the report, tumbling gas and energy prices plunged 2.7% from October, pushing the swing into negative territory.
“This trend is as graceful and encouraging as anybody could have hoped for when the Fed started lifting rates,” Matt Colyar, Moody’s Analytics economist, told CNN. “It’s another good, solid report, and it’s becoming increasingly [evident] that what the Fed has done has not initiated a recession and has coincided with their main goal, which is prices back down toward their 2% target.”
The Federal Reserve’s preferred inflation meter, the “core” Personal Consumption Expenditures price index that does not include energy and food prices, also relaxed to 3.2% for the year ended in November. This is a step back from October’s annual increase of 3.4% and a step towards the central bank’s 2% target rate. The core PCE price index is at its lowest annual rate since March 2021.
“More importantly, the six-month annualised average rate of inflation is now up 1.87%, indicating easing inflation pressures in contrast with the 4% pace of core inflation during the first six months of the year,” Joe Brusuelas, principal and chief economist at RSM US, wrote in a note on Friday. “These data are consistent with a strong and growing economy bolstered by income gains above inflation and a dynamic labour market as inflation eases.”
According to consensus estimates on FactSet, economists predicted core inflation would rise by 0.2% from the month before and for an annual increase of 3.4%.
The PCE price index’s first monthly drop since April 2020 is a welcome change of pace for Americans who have been hurt by high inflation since early 2021. However, while deflation has appeared in pockets, too many expectations can be wrong. “A monthly decline, especially in the headline PCE index, is not representative of a deflationary economy,” Gus Faucher, senior vice president and chief economist of the PNC Financial Services Group, briefed CNN in an interview on Thursday before the inflation report.
Monthly data is incomplete and frequently modified. The index is far more susceptible to volatile swings from elements like food and energy. An oil price spike, weather events or random animal illnesses could have influential effects quickly.
“Absent a recession, it’s difficult to see overall deflation in the economy because I think the labour market is going to remain solid, and we will continue to see wages growing and going up at a pace consistent with 2% inflation,” he stated.
He added: “The Fed wants to avoid deflation; so, if we see inflation slowing, moving below 1%, I think we see the Fed cutting rates to head off deflation.”
During last week’s Federal Open Market Committee, when central bankers held rates regularly again, policymakers indicated that rate cuts could come in 2024. “If core PCE keeps ticking up by 0.1% and almost rounding down to zero, then [the Fed has] a lot of leeway to begin cutting rates,” Colyar said. “There certainly hasn’t been any sign that they should deviate from [their projections last week.]”
The months of restricting inflation and stable and vigorous labor market conditions support Americans to feel better about the overall economy and its approach. According to the monthly report released by the Conference Board earlier this week, the December Consumer Confidence Index bounced to its highest level since July. On Friday, a report from the University of Michigan indicated that its calculation of consumer opinion spiked nearly 14% from November.
