Inflation Is on the Right Track as Fed’s Preferred Gauge Cools Again
By Jack Denton
Updated Jan. 27, 2023 8:59 am ET / Original Jan. 27, 2023 1:00 am ET
The Federal Reserve’s preferred measure of inflation rose 4.4% annually in December, down from 4.7% in November, the latest sign that the era of red-hot prices is coming to an end and that the Fed may soon pivot to a less aggressive monetary policy stance.
The core personal-consumption expenditures (PCE) price index, also known as the core PCE deflator, rose 4.4% on an annual basis in December from 4.7% in November, in line with expectations of economists surveyed by FactSet.
The so-called headline PCE deflator, which includes food and energy prices, declined to 5% in December from 5.5% in November, further evidence of cooling inflation.
Investors—who have welcomed declines in inflation as a signal that fewer interest-rate increases may be coming—seemed mostly unmoved by the news, which does little to advance the narrative around price pressures. Futures contracts tracking the Dow Jones Industrial Average DJIA +0.61% and S&P 500 SPX +1.10% ticked slightly higher after the release but were still poised to open in the red.
But the news wasn’t all positive. The report showed spending for personal consumption declined by 0.2% in December from November, which investors could see as as a worrying sign for the economy.
Wall Street remains on edge over the risk of a recession. An initial reading of U.S. economic growth in the fourth quarter of 2022, released Thursday, showed that near-term expansion is past its peak and that core components of growth may be weakening.
(This is a developing story. Please check back soon for more detail and analysis. Below is a look at what economists were expecting before the data were released.)
The Federal Reserve’s preferred measure of rising prices is set to show that inflation continues to trend downward, supporting the narrative that the central bank could soon ease up in its battle against elevated prices.
The core personal-consumption expenditures price index is expected to have climbed 4.4% year over year in December, based on consensus estimates of economists surveyed by FactSet, a slight slowdown from November’s 4.7% growth. On a month-over-month basis, the index is projected to have advanced by 0.3%. This index, also known as the core PCE deflator, gauges the prices that U.S. consumers are paying for goods and services, excluding food and energy.
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