Topline
Inflation has officially fallen to the critical 2% level, according to a measure released Friday morning by the Bureau of Economic Analysis, adding fuel to the historic equity market rally heading into year’s end.
This holiday season has brought more stable prices for consumers.
Key Facts
The core personal consumption expenditures price index fell to 1.9% in November on a six-month annualized basis.
The core PCE index is the Federal Reserve’s favored inflation metric as it directly tracks how much Americans spend on less volatile goods and services.
Though the Fed technically tracks inflation on a full-year basis—core PCE inflation ran at 3.2% year-over-year in November, checking in lower than consensus economist estimates of 3.3%—the latest data seemingly confirms that inflation is well on its way to reaching a more palatable rate.
Headline inflation as measured by PCE, which includes more volatile food and energy inputs, was 2.6% on a year-over-year basis, registering the lowest reading since February 2021 and coming in below economists’ 2.8% projection.
The broader PCE index actually fell 0.1% from October to November, registering the first monthly decrease since 2020.
Key Background
Beyond indicating stability for consumers, under-control inflation will likely lead the Fed to cut interest rates, which the Fed hiked in the first place beginning last year to combat high inflation. The PCE reading comes after several weeks of better-than-expected inflation data, including from PCE’s sister consumer price index, leading to heavy anticipation about when, and by how much, the Fed will cut interest rates in 2024. The market currently expects about 150 basis points of rate cuts next year, according to CME Group data, far greater than the 75 basis points share in Fed officials’ median forecast released last week. Considering lower rates tend to boost corporate earnings as business loans become less costly, investors have celebrated the recent drop in inflation. The S&P 500 is up about 12% over the last two months thanks mostly to the looming shift in monetary policy.
Big Number
About 29%. That’s how much more Americans spent last month than they did in November 2020, according to PCE, just before the U.S. entered its worst bout of inflation since the early 1980s. Average hourly wages have increased by 15% during the same period, reflecting the lingering pain felt by inflation.
Further Reading
MORE FROM FORBESFed’s Pet Inflation Metric Hits 2-Year Low Of 3.5%By Derek Saul
