Prices barely moved in November, but they are still above the Federal Reserve's target when viewed a year ago, according to a Commerce Department gauge released Friday.
The Personal Consumption Expenditures Price Index, the Fed's preferred measure of inflation, showed an increase of just 0.1% compared to October. This measure indicated an inflation rate of 2.4% year over year, still ahead of the Fed's target of 2%, but below the Dow Jones estimate of 2.5%. The monthly reading was also 0.1 percentage point below expectations.
Excluding food and energy, the core personal consumption expenditures index also rose 0.1% month-on-month and was 2.8% higher than a year ago, with both readings also 0.1 percentage points below expectations. Fed officials generally view the core reading as a better measure of long-term inflation trends because it excludes the volatile gas and grocery categories.
The annual core inflation reading was the same as in October while the headline rate rose by 0.1 percentage point.
The readings reflect a slight increase in commodity prices and an increase in service prices by 0.2%. Food and energy prices also posted gains of 0.2%. On a monthly basis, goods prices fell by 0.4%, but services rose by 3.8%. Food prices rose by 1.4% while energy prices fell by 4%.
Housing inflation, one of the most consistent components of inflation during its economic cycle, showed signs of slowing in November, rising just 0.2%.
The income and spending numbers in the release were also a bit light compared to expectations.
Personal income rose 0.3% after jumping 0.7% in October, below estimates of 0.4%. Regarding spending, personal spending increased by 0.4%, one-tenth of a percentage point lower than expected.
The personal savings rate fell to 4.4%.
Stock market futures settled in negative territory following the report while Treasury yields also fell.
“It looks like flat inflation was less challenging this morning,” said Chris Larkin, managing director of trading and investing at e-commerce firm Morgan Stanley. “The Fed's preferred measure of inflation came in lower than expected, which may mitigate some of the impact of market disappointment due to the Fed's interest rate announcement on Wednesday.”
The report comes just two days after the Fed cut its benchmark interest rate by another quarter of a percentage point to a target range of 4.25%-4.5%, its lowest level in two years. However, Chairman Jerome Powell and his colleagues have lowered their projected path in 2025, and are now planning just two cuts compared to four cuts set in September.
Although Powell said on Wednesday that inflation was “very close” to the Fed's target, he said changes in the expected path of interest rate cuts reflected “expectations that inflation will be higher” next year.
“It's kind of a common sense that when the path is uncertain you go a little slower,” Powell said. “It's no different than driving on a foggy night or walking into a dark room full of furniture. Just slow down.”
