Fed’s Key Inflation Gauge Eases to 2.4% in November, Below Expectations

Fed’s Inflation Measure Indicates Slower Price Growth at 2.4% in November

The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, showed an annual increase of 2.4% in November 2024, below the Dow Jones estimate of 2.5%. Monthly inflation rose by 0.1%, maintaining a subdued pace as price pressures eased across key sectors.

How Did Income and Spending Trends Develop?

Personal income rose by $71.1 billion, or 0.3%, in November, with disposable personal income (DPI) growing at the same rate. Personal consumption expenditures (PCE), a key indicator of consumer spending, increased by $81.3 billion, or 0.4%. Real disposable income adjusted for inflation grew by 0.2%, and real PCE increased by 0.3%, driven by a 0.7% rise in spending on goods and a modest 0.1% increase in services spending.

Goods spending was supported by strong demand for motor vehicles and recreational products, while services spending saw notable contributions from financial services, recreation activities, and healthcare. The personal savings rate, however, edged lower to 4.4%, reflecting higher spending relative to disposable income.

What’s Behind the Easing Inflation?

The November data underscores a slowdown in inflationary pressures. Core PCE, which excludes volatile food and energy prices, rose by just 0.1% month-over-month and 2.8% year-over-year. Energy prices dropped by 4.0% compared to November 2023, while food prices increased by 1.4%. Services costs remained a key driver of overall inflation, rising 3.8% annually, while goods prices declined 0.4%.

The relatively stable monthly inflation figures reflect softer pricing in sectors like energy and goods, bolstered by cooling supply chain pressures and cautious consumer demand.

How Do Revisions Impact the Broader Trend?

Updated estimates for prior months indicate that personal income and spending were slightly stronger than initially reported for September and October. These adjustments suggest a more resilient consumer sector heading into the final quarter of 2024, supported by steady wage growth and easing inflation.

Short-Term Implications

The latest inflation figures bolster expectations of the Federal Reserve holding interest rates steady in upcoming policy meetings. The continued deceleration in inflation, especially in core measures, aligns with the Fed’s 2% target. Coupled with resilient consumer spending and income growth, the short-term market outlook appears moderately bullish for equities, particularly in consumer-driven sectors.

However, the reduced savings rate signals potential future constraints on spending, warranting caution for long-term sustainability. Traders should monitor upcoming economic data, especially labor market reports, for further insight into the Fed’s policy direction.