US annual inflation slows further below 3% in November
ANNUAL US inflation slowed further below 3 per cent in November and underlying price pressures continued to abate, which could cement financial market expectations for an interest rate cut next March.
Inflation, as measured by the personal consumption expenditures (PCE) price index, fell 0.1 per cent last month after being unchanged in October, the Commerce Department’s Bureau of Economic Analysis said on Friday (Dec 22).
In the 12 months through November, the PCE price index increased 2.6 per cent after rising 2.9 per cent in October. October was the first since March 2021 that the annual PCE price index was below 3 per cent.
Excluding the volatile food and energy components, the PCE price index rose 0.1 per cent in November, matching December’s gain. The so-called core PCE price index advanced 3.2 per cent year-on-year in November, the smallest rise since April 2021, after increasing 3.4 per cent in October.
The Federal Reserve tracks the PCE price measures for its 2 per cent inflation target. Economists polled by Reuters had forecast the annual PCE price index would rise 2.8 per cent, and that annual core PCE inflation would increase 3.3 per cent.
Monthly inflation readings of 0.2 per cent on a sustainable basis are needed to bring inflation back to the Fed’s target, economists said.
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Early on Friday, financial markets were pricing a roughly 72 per cent chance of a rate cut at the Fed’s Mar 19 to 20 policy meeting, according to CME Group’s FedWatch Tool.
The US central bank held rates steady last week, policymakers signalled in new economic projections that the historic monetary policy tightening engineered over the last two years is at an end, and lower borrowing costs are coming in 2024. Since March 2022, the Fed has hiked its policy rate by 525 basis points to the current 5.25 to 5.5 per cent range.
With inflation cooling, households have more income at their disposal. Consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.2 per cent last month. Data for October was revised to show spending rising 0.1 per cent instead of the previously reported 0.2 per cent.
Economists had forecast spending would gain 0.3 per cent.
The report added to data this week that suggested the economy was regaining some speed after appearing to falter at the start of the fourth quarter. On Wednesday, the Commerce Department reported that single-family housing starts and building permits hit one-and-a-half year highs in November.
The string of upbeat data prompted economists to boost their gross domestic product growth estimates for this quarter, which are as high as a 2.7 per cent annualised rate. The economy grew at a 4.9 per cent pace in Q3. REUTERS
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