Fed's favored inflation gauge shows consumer prices remained elevated in November

• Headline PCE rose 2.8% annually in November, above the 2.7% estimate, while core PCE matched expectations at 2.8% year-over-year
• Monthly PCE and core PCE both increased 0.2%, in line with economist forecasts
• Inflation has remained stubbornly elevated, with headline PCE in the 2.7%-2.8% range from August through November, well above the Fed's 2% long-run target

Summary

The Federal Reserve's preferred inflation metric, the Personal Consumption Expenditures (PCE) index, showed consumer prices remained elevated in November ahead of the Fed's upcoming policy meeting.

Key Data Points:

• Headline PCE rose 0.2% month-over-month in November, meeting expectations
• Annual headline PCE increased 2.8%, slightly above the anticipated 2.7%
• Core PCE (excluding food and energy) rose 0.2% monthly and 2.8% annually, both in line with forecasts
• Delayed October data revealed both headline and core PCE were up 2.7% year-over-year

Market Context:

The inflation readings remain persistently above the Federal Reserve's long-term target of 2%. Headline PCE has hovered between 2.7% and 2.8% from August through November, while core PCE has ranged from 2.7% to 2.9% between May and November, indicating stubborn inflationary pressures.

Implications:

The elevated inflation figures arrive at a critical time as Federal Reserve policymakers prepare for their next monetary policy meeting. While the Fed focuses on headline PCE for its 2% inflation target, officials consider core data a more reliable indicator of underlying inflation trends. The persistent readings above target suggest the Fed may maintain its cautious approach to interest rate adjustments.

The slightly hotter-than-expected annual headline figure could influence the central bank's policy decisions and forward guidance, potentially affecting market expectations for rate cuts in 2024.