Fed’s Key Inflation Gauge Falls in November as Prices Ease


In November, the Federal Reserve’s preferred inflation indicator experienced a decline, signaling a further easing of inflationary pressures. The latest report from the Commerce Department revealed a 0.1% decrease in U.S. consumer prices compared to October, with a 2.6% rise from November 2022. This month-over-month decrease marked the most significant drop since April 2020, amid the economic challenges posed by the COVID-19 pandemic.

The core inflation, excluding volatile food and energy prices, saw a 0.1% increase from October and a 3.2% rise from the previous year. These figures indicate a somewhat more positive trend against inflation than economists had anticipated. The inflation rate is steadily approaching the Federal Reserve’s year-over-year target of 2%, setting the stage for potential rate cuts in 2024. Such reductions could result in lower interest rates on various financial products, including mortgages and credit cards. Already, the benchmark 30-year fixed-rate mortgage has fallen to a six-month low of 6.67%, down from October’s 7.79%.

Consumers are beginning to experience relief from high prices, with notable decreases in the cost of components like bacon, lettuce, tomatoes, car rentals (down 11%), airfares (down 12%), and furniture (down 3%) over the past year.

Following almost two years of 11 rate hikes since March 2022, inflation has retreated from the highs witnessed last year. The Labor Department’s consumer price index, closely monitored for economic trends, rose 3.1% last month from November 2022, a significant decline from the 9.1% year-over-year increase recorded in June 2022.

Buoyed by these positive developments, the Federal Reserve has refrained from raising rates at its last three meetings, signaling its expectation to implement rate cuts three times in the coming year. Rubeela Farooqi, Chief U.S. Economist at High Frequency Economics, predicts a shift in the Fed’s policy stance from maintaining steady rates to gradually lowering them next year, with potential cuts starting by the middle of the year.

Contrary to predictions of a recession accompanying higher rates, the robust U.S. economy and job market have remained resilient. This has fueled optimism that the Federal Reserve can achieve a “soft landing,” effectively curbing inflation to its 2% year-over-year target without triggering an economic downturn.

The Commerce Department’s inflation gauge, known as the personal consumption expenditures (PCE) price index, revealed a year-over-year peak of 7.1% in June 2022. The Fed favors the PCE index over the Labor Department’s Consumer Price Index (CPI) due to its ability to account for shifts in consumer behavior during inflationary periods.

In addition to the inflation data, the report highlighted a 0.2% increase in consumer spending last month, following a 0.1% rise in October. Personal income also experienced a modest uptick, rising 0.4% in November, compared to 0.3% in the previous month.

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About the author: Stephanie Bedard-Chateauneuf has over six years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on tech stocks, consumer stocks, health stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.