A US inflation indicator closely followed by the Federal Reserve grew 5% in the year to December, down measurably from an annual expansion of 6.8% in June, showing the central bank's gains in its use of high interest rates to fight runaway inflation
WASHINGTON (Pakistan Point News / Sputnik - 27th January, 2023) A US inflation indicator closely followed by the Federal Reserve grew 5% in the year to December, down measurably from an annual expansion of 6.8% in June, showing the central bank's gains in its use of high interest rates to fight runaway inflation.
Without volatile food and energy prices, the Personal Consumption Expenditures (PCE) Price Index was up 4.4% during the 12 months to December versus 4.8% in the year to June, data from the Commerce Department showed.
Both the PCE's headline and core readings for December came in as forecast by Wall Street economists, who largely lauded the Fed's efforts in curbing inflation even as a few pointed out that the central bank had more work to do.
"Under the covers of this report, the Fed might not like seeing services inflation up 0.7% month-on-month," economist Adam Button said on the ForexLive forum. "That's counteracted by a 1% decline in goods prices, including -2.3% in durable goods."
Button also reiterated Fed Chair Jerome Powell's worry about core inflation remaining relatively high � dropping just 0.4% annually over the six-month gap versus the 1.3% slump in headline inflation.
"That's why they (the Fed) plan to hike to 5.00-5.25% and stay there," Button said, referring to the central bank's idea of peak rates in order to get inflation back to its long-held target of 2% per annum.
The Fed has added 425 basis points to rates since March via seven increases. Prior to that, rates peaked at just 25 basis points, as the central bank slashed them to nearly zero after the global COVID-19 outbreak in 2020.
While the Fed executed four back-to-back jumbo hikes of 75 basis points from June through November, since December it has imposed a more modest 50-basis point increase. For its next rate decision on February 1, economists expect the central bank to announce an even smaller hike of 25 basis points. The last time the Fed had a 25 basis-point increase was in March 2022, at the start of its current rate hike cycle.
While the PCE is the Fed's preferred inflation gauge, the broader Consumer Price Index, or CPI, is also used by the central bank to measure the pulse of prices across America.
Inflation as indicated by CPI rose by 6.5% in the 12 months to December, the Labor Department said. It was the slowest annual advance in the CPI since October 2021.
The CPI hit a 40-year high in June when it grew at an annual rate of 9.1%, versus the Fed's inflation target of just 2% per annum.