An
important
inflation
gauge
released
Friday
showed
that
the
rate
of
price
increases
cooled
as
2023
came
to
a
close.
The
Commerce
Department’s
personal
consumption
expenditures
price
index
for
December,
an
important
gauge
for
the
Federal
Reserve,
increased
0.2%
on
the
month
and
was
up
2.9%
on
a
yearly
basis,
excluding
food
and
energy.
Economists
surveyed
by
Dow
Jones
had
been
looking
for
respective
increases
of
0.2%
and
3%.
On
a
monthly
basis,
core
inflation
increased
from
0.1%
in
November.
However,
the
annual
rate
declined
from
3.2%.
The
12-month
rate
is
the
lowest
since
March
2021.
Including
volatile
food
and
energy
costs,
headline
inflation
also
rose
0.2%
for
the
month
and
held
steady
at
2.6%
annually.
The
release
adds
to
evidence
that
inflation,
while
still
elevated,
is
continuing
to
make
progress
lower,
possibly
giving
the
Fed
a
green
light
to
start
cutting
interest
rates
later
this
year.
The
central
bank
targets
2%
as
a
healthy
annual
inflation
rate.
Markets
took
little
notice
of
the
data,
with
stock
futures
indicating
only
a
slight
change
at
the
open
and
Treasury
yields
mostly
lower.
“Inflation
dynamics
inside
the
metric
that
the
Fed
uses
to
formulate
policy
strongly
imply
that
the
central
bank
will
hit
its
inflation
target
in
the
near
term,”
said
Joseph
Brusuelas,
chief
economist
at
RSM.
“This
will
create
the
conditions
in
which
it
makes
[its]
policy
pivot
and
begins
a
multiyear
campaign
in
which
it
reduces
the
policy
rate
towards
a
range
between
2.5%
and
3%.”
The
Fed’s
benchmark
overnight
interest
rate
is
currently
targeted
between
5.25%-5.5%.
As
inflation
drifted
closer
to
the
Fed’s
target,
consumer
spending
increased
0.7%,
stronger
than
the
0.5%
estimate.
Personal
income
growth
edged
lower
to
0.3%,
in
line
with
the
forecast.
The
data
indicated
that
consumers
are
dipping
into
savings
to
pay
for
their
expenditures.
The
personal
savings
rate
fell
to
3.7%
for
the
month,
down
from
4.1%
in
November.
Within
the
inflation
numbers,
prices
for
goods
declined
by
0.2%
while
services
prices
rose
by
0.3%,
reversing
a
trend
when
inflation
began
to
spike.
As
the
pandemic
forced
people
to
stay
home
more,
demand
for
goods
spiked,
adding
to
supply
chain
problems
and
exacerbating
price
increases.
Food
prices
increased
0.1%
on
the
month
while
energy
goods
and
services
rose
0.3%.
Prices
for
longer-lasting
durable
goods
such
as
appliances,
computers
and
vehicles
decreased
0.4%.
Looked
at
in
conjunction
with
a
separate
report
Thursday
showing
that
gross
domestic
product
grew
at
a
much
faster-than-expected
3.3%
pace
in
the
fourth
quarter,
the
most
recent
round
of
data
shows
an
expanding
economy
and
inflation
at
least
moving
back
to
the
Fed’s
2%
annual
target.
“It
is
hard
to
say
which
is
more
remarkable:
that
GDP
growth
accelerated
last
year
following
the
Fed’s
most
aggressive
tightening
campaign
in
decades,
or
that
core
inflation
nevertheless
fell
back
to
the
2%
target
in
annualized
terms
over
the
second
half
of
the
year,”
wrote
Andrew
Hunter,
deputy
chief
U.S.
economist
at
Capital
Economics.
“Either
way,
it
is
time
for
Fed
officials
to
take
the
win
and
start
dialing
back
the
level
of
policy
restrictiveness
soon,”
he
added.
While
the
public
more
closely
follows
the
Labor
Department’s
consumer
price
index,
Fed
policymakers
prefer
the
PCE
because
it
adjusts
for
shifts
in
what
consumers
actually
buy,
while
the
CPI
measures
prices
in
the
marketplace.
Inflation
has
been
a
nettlesome
problem
since
the
early
days
of
the
Covid
pandemic,
when
price
increases
surged
to
their
highest
levels
since
the
early
1980s.
The
Fed
initially
expected
the
acceleration
to
be
temporary,
then
responded
with
a
series
of
interest
rate
hikes
that
took
its
benchmark
rate
to
its
highest
in
more
than
22
years.
Now,
with
the
inflation
rate
cooling
markets
largely
expect
the
Fed
to
start
unwinding
its
policy
tightening.
As
of
Friday
morning,
futures
traders
were
assigning
about
a
53%
chance
the
Fed
will
enact
its
first
rate
cut
this
cycle
in
March,
according
to
CME
Group
data.
Pricing
points
to
six
quarter-percentage
point
decreases
this
year.
Don’t
miss
these
stories
from
CNBC
PRO:
