Home Economics PCE Inflation Rises for Third Straight Month

PCE Inflation Rises for Third Straight Month

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Key Points

  • PCE inflation rose 2.6% in December.
  • It is the third straight month that the PCE inflation rate has climbed.
  • Core PCE held steady at 2.8%.

The FOMC’s preferred gauge of inflation rose to 2.6% in December.

The Federal Reserve’s preferred gauge for inflation, Personal Consumption Expenditures (PCE), rose for the third straight month in December, according to the U.S. Bureau of Economic Analysis.

PCE inflation rose 0.3% in December, its biggest monthly jump since last April. Over the past 12 months, PCE inflation rose 2.6%, which is up from a 2.4% increase in November. It is the third straight month of gains since hitting a recent low of 2.1% in September.

The 2.6% increase in the PCE is also the highest it has been since April 2024 when it was at 2.7%.

The numbers were not unexpected, as economists forecasted the PCE to rise 0.3% in December and 2.6% year over year.

It mirrors the trajectory of the Consumer Price Index (CPI), which has also risen for three straight months. In December, CPI inflation rose 2.9%.

Core PCE holds steady

Core PCE, which excludes more volatile food and energy prices, held the line at 2.8%. It rose 0.2% in December. Both the monthly and 12-month rates were in line with analysts’ expectations.

Core PCE has remained at 2.8% for three consecutive months.

Prices for durable goods dropped 1.1% in December, the same as November. However, prices of nondurable goods increased 0.6%, up from 0.0% in November. Nondurable goods and items that are used up in short order, like food, clothing, paper products, household items etc. This is the first 12 month increase in nondurable goods since July.

Prices for services, however, remain high. They have increased 3.8% over the past 12 months, same as November and October.

Further, food prices have climbed 1.6% over the past year, while the cost of energy goods and services has gone 1.1%.

No rate cuts expected in March

The PCE report didn’t change the calculus for interest rate traders on their expectations for rate cuts. According to the CME FedWatch survey, 82% of interest rate traders anticipate that the FOMC will keep rates where they are in March, while 18% see a 25-basis point cut.

In May, the percentage of those who say rates will remain unchanged is 57%. It isn’t until the June FOMC meeting that a majority of interest rate traders see the Fed cutting rates. In June, 29% expect the FOMC to keep rates at 4.25% to 4.50%, but 47% see a 25 point drop while 21% see a 50-point decline. An optimistic 2.7% expect a 75-point decline.

On Wednesday, the FOMC decided not to reduce rates for the first time since July, citing concerns about rising inflation rates and uncertainty about the impact of the Trump Administration’s policies.

Ameriprise Financial chief economist Russell Price told Morningstar he is optimistic that both the monthly and annual rates will start to come down in the months ahead, and get close to the FOMC’s target of 2% sometime later this year.

The markets were up on Friday, led by the Nasdaq, which had gained 265 points, or 1.3%, at around 10:30 a.m. ET. The S&P 500 had gained 43 points, or 0.7%, while the Dow ticked up 50 points, or 0.1%.  

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Dave Kovaleski
Senior News Writer

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