According to a Commerce Department report released Friday, inflation ended 2024 strongly as a pricing indicator that the Fed watches came in much higher than the central bank’s target.
In December, the price index for personal consumption expenditures grew 2.6% year over year, which was 0.2 percentage points higher than the November reading and consistent with the Dow Jones estimate.
Core PCE, excluding food and energy, showed a reading of 2.8%, which was in line with the previous month and met expectations. Historically, authorities have viewed core as a more accurate indicator of long-term inflation, even though the Fed takes into account both measures.
Monthly headline PCE increased by 0.3% and core PCE increased by 0.2%, both of which were consistent with projections.
The price measure has not reached the 2% annual inflation objective set by the Fed since February 2021.
Energy prices rose 2.7% throughout the month, while food prices increased only 0.2%. Prices for durable goods, which include things like electronics, appliances, and airplanes, decreased by 0.4%, indicating deflation. Nondurables increased by 0.5 percent.
The central bank took a respite after three straight rate decreases totaling a full percentage point when it unanimously decided to keep its key interest rate in the range of 4.25 to 4.5%, two days before to the release of the report.
The Federal Reserve’s 2% inflation target is still well above the current level. “The data indicates that inflation remained elevated in December to end 2024, making it somewhat ironic that the Federal Reserve cut interest rates during the same month,” observed Clark Bellin, chief investment officer at Bellwether Wealth, despite Friday’s PCE print being in line with expectations.
Fed Governor Michelle Bowman stated in her remarks on Friday morning that she believes the central bank should remain on hold until there are unambiguous indications that inflation is slowing down through 2025.
To get inflation closer to our 2 percent target, more work needs to be done. In a speech to business leaders in Portsmouth, New Hampshire, Bowman stated, “I would like to see progress in lowering inflation resume before we make further adjustments to the target range.” I do anticipate that inflation will start to drop once more and will be lower at the end of the year than it is currently.
Additionally, the report released on Friday revealed that while spending jumped by 0.7%, or a tenth of a percentage point, in December, personal income increased by 0.4%, as predicted.
In other news, the Bureau of Labor Statistics said Friday that the employment cost index increased by a seasonally adjusted 0.9% in the fourth quarter of 2024, which was somewhat higher than the third-quarter reading but still in line with forecasts. The ECI grew 3.8% annually, which is a tenth of a point less than the Q3 reading.
More from CNBC:
-
Chevron calls Gulf of Mexico the Gulf of America in earnings release after Trump order
-
Denver awarded NWSL s 16th franchise at record $110 million expansion fee
-
Here s what federal employees need to consider when evaluating offer to resign