WASHINGTON – Annual US inflation slowed further below 3 per cent in November and underlying price pressures continued to abate, which could cement financial market expectations for an interest rate cut in March 2024.
Inflation, as measured by the personal consumption expenditures (PCE) price index, fell 0.1 per cent in November after being unchanged in October, the Commerce Department’s Bureau of Economic Analysis said on Dec 22. In the 12 months through November, the PCE price index increased 2.6 per cent after rising 2.9 per cent in October. October was the first since March 2021 that the annual PCE price index was below 3 per cent.
Excluding the volatile food and energy components, the PCE price index rose 0.1 per cent in November, matching December’s gain. The so-called core PCE price index advanced 3.2 per cent year on year in November, the smallest rise since April 2021, after increasing 3.4 per cent in October.
The Federal Reserve tracks the PCE price measures for its 2 per cent inflation target. Economists polled by Reuters had forecast the annual PCE price index would rise 2.8 per cent and that annual core PCE inflation would increase 3.3 per cent.
Monthly inflation readings of 0.2 per cent on a sustainable basis are needed to bring inflation back to the Fed’s target, economists say. Early on Dec 22, financial markets were pricing a roughly 72 per cent chance of a rate cut at the Fed’s March 19 to 20 policy meeting, according to CME Group’s FedWatch Tool.
The United States central bank held rates steady last week and policymakers signalled, in new economic projections, that the historic monetary policy tightening engineered over the last two years is at an end and lower borrowing costs are coming in 2024. Since March 2022, the Fed has hiked its policy rate by 525 basis points to the current 5.25 to 5.50 per cent range.
With inflation cooling, households have more income at their disposal. Consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.2 per cent last month. Data for October was revised to show spending rising 0.1 per cent, instead of the previously reported 0.2 per cent.
Economists had forecast spending would gain 0.3 per cent.
The report added to data this week that suggested the economy was regaining some speed after appearing to falter at the start of the fourth quarter. On Dec 20, the Commerce Department reported that single-family housing starts and building permits hit 1½-year highs in November.
The string of upbeat data prompted economists to boost their gross domestic product growth estimates for this quarter, which are as high as a 2.7 per cent annualised rate.
The economy grew at a 4.9 per cent pace in the third quarter.