Fed’s Preferred Inflation Index Cooled In November, But Core Prices Remain Stubbornly Elevated

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The Federal Reserve’s preferred inflation metric, the Personal Consumption Expenditures Price Index (PCE Price Index) excluding food and energy, cooled for the second month in a row in November, but remained well above the Fed’s target of 2%, according to the U.S. Commerce Department’s Bureau of Economic Analysis (BEA) Friday.

“Core prices,” which discount the more-volatile food and energy sectors, rose 0.2% compared to October, and 4.7% compared to November, 2021, the BEA reported. Inflation on core prices has hovered between 4.7% and 5.3% through the year, hitting the low-point in May and July, according to archived BEA data.

When food and energy was factored in, inflation cooled to 5.5% in November, from 6.1% in October, reaching the lowest level since October 2021 when inflation was at 5.1%, the BEA reported. As measured by the more closely-watched Consumer Price Index, core price inflation continued to cool from 40-year highs to 6% year-over-year in November, while overall inflation moderated to 7.1%, according to the Bureau of Labor Statistics (BLS).

The Fed’s preferred inflation gauge, the PCE price index, has been substantially cooler than the better-known CPI for most of this period. But lately, they’ve pretty much converged — they’re telling very similar stories about how much prices have risen in recent months. pic.twitter.com/kWnKg480bE

— Ben Casselman (@bencasselman) December 23, 2022

The growth in core PCE matched economists expectations, according to CNN, citing a poll by financial firm Refinitiv.

Real disposable personal income, an inflation-adjusted measure for the overall income Americans had to spend or save, grew by 0.3% in November from October, according to the BEA. In contrast, the BLS found that real average hourly earnings declined by roughly 0.5% from October to November.

Inflation-adjusted spending increased less than 0.1%, with spending on goods declining by 0.6% and services increasing 0.3%, the BEA reported. Unadjusted for inflation, retail sales declined by 0.6% in November after climbing 1.3% in October, according to the Commerce Department’s Census Bureau on Dec. 15.

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