Fed’s Preferred Inflation Measure Shows Cooling

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Friday, December 1, 2023

Reinforcing the view of decreasing inflation, the Federal Reserve's (Fed) preferred inflation measure, the Personal Consumption Expenditures (PCE) report, showed a slowing of pricing pressures in the United States, accompanied by a moderation in consumer spending. 

Excluding the volatile food and energy prices, core PCE — the gauge most closely watched by the Fed —rose 0.2 percent for the month and 3.5 percent on a year-over-year basis, in line with expectations. Headline inflation — which includes all categories — was flat on the month and rose 3 percent for the 12-month period. For October, a fall in energy prices was offset by an increase in food prices.

Consumer spending showed a moderate increase, and the annual rise in inflation was the smallest in over 2-1/2 years, suggesting a slowdown in demand.

The PCE price index is released each month in the Personal Income and Outlays report by the Bureau of Economic Analysis, reflecting changes in the prices of goods and services purchased by consumers in the United States. Another popular measure of inflation is the consumer price index (CPI), released by the Bureau of Labor Statistics, which measures the change in the out-of-pocket expenditures of all urban households. The federal government uses the CPI to make inflation adjustments to certain kinds of benefits, including Social Security. Meanwhile, the Federal Open Market Committee focuses on PCE inflation in its quarterly economic projections when deciding future rate policy, as well as stating its longer-run inflation goal in terms of headline PCE.

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