Economic Measures
The Personal Consumption Expenditures (PCE) price index, which is the Federal Reserve’s preferred measure of inflation, grew at its slowest rate since early 2021 in November. The PCE price index rose by 2.6% compared to the same period last year, coming closer to the Federal Reserve’s 2% target and down from 2.9% the previous month. Economists noted that the slowdown in inflation is a positive sign indicating a soft landing is near.
Slowdown in the Federal Reserve’s Preferred Inflation Index
The Federal Reserve’s preferred inflation index slowed down while strong income and spending growth was achieved in November, marking the latest indication of a soft landing.
Decline in the Personal Consumption Expenditures Index
The Personal Consumption Expenditures index fell by 0.1%, marking its first decline since April 2020. The index was up 2.6% from the same period last year, but was closer to the Federal Reserve’s 2% target and down from 2.9% the previous month. This is the lowest rate since the beginning of 2021.
Growth in Core Prices Index
The core prices index, which excludes food and energy prices, increased by only 0.1%, the same as the previous month. The core prices index was up by 3.2% from the same period last year, lower than 3.4% the previous month.
Boosting Confidence in a Soft Landing
The slowdown may enhance confidence that the Federal Reserve’s interest rate hikes to combat inflation have yielded the desired results. Federal Reserve officials indicated that they expect to lower interest rates sometime in the new year during their meeting in December.
PCE Index is the Federal Reserve’s Preferred Inflation Measure
The PCE index is considered the Federal Reserve’s preferred inflation measure, as it reflects inflation trends that are not affected by short-term price fluctuations. The Federal Reserve also monitors the Consumer Price Index (CPI), which showed a year-over-year increase of 3.1% in November.
Hope for the Economy in the New Year
The inflation index is the latest data point that bolsters hopes for the economy in the new year. The labor market remains relatively strong, and consumers are optimistic about their financial situations thanks to a strong stock market and declining fuel prices. Even the housing market, which has been bleak for most of the year, is showing improvement.
Slowdown in Economic Growth
Michael Pearce, the senior U.S. economist at Oxford Economics, stated, “The personal income and spending data for November were an encouraging read, showing that real consumption growth – the core of the economy – is slowing to a more sustainable pace in the fourth quarter, while inflation pressures, including sticky services inflation, continue to melt away.” He added, “Things are starting to look like a soft landing.”
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U.S. Bureau of Economic Analysis. “Personal Income and Outlays, November 2023.”
U.S. Bureau of Economic Analysis. “Personal Income and Outlays, November 2023.”
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Links
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Personal Consumption Expenditures (PCE): What It Is and How to Measure It
Core Inflation
Retail Sales: Definition, Measurement, and Use as an Economic Indicator
Consumer Price Index (CPI) Explained: What It Is and How to Use It
Personal Income and Expenditures: Meaning and How It Works
Gross Domestic Product (GDP): The Formula and How to Use It
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