US annual inflation slows further below 3% in November

Washington — Annual US inflation slowed further below 3% 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% last month after being unchanged in October, the Commerce Department’s Bureau of Economic Analysis said on Friday. In the 12 months through November, the PCE price index increased 2.6% after rising 2.9% in October. October was the first since March 2021 that the annual PCE price index was below 3%.

Excluding the volatile food and energy components, the PCE price index rose 0.1% in November, matching December’s gain. The so-called core PCE price index advanced 3.2% year-on-year in November, the smallest rise since April 2021, after increasing 3.4% in October.

The Federal Reserve tracks the PCE price measures for its 2% inflation target. Economists polled by Reuters had forecast the annual PCE price index would rise 2.8% and that annual core PCE inflation would increase 3.3%.

Monthly inflation readings of 0.2% on a sustainable basis are needed to bring inflation back to the Fed's target, economists say. Early on Friday, financial markets were pricing a roughly 72% chance of a rate cut at the Fed's March 19-20 policy meeting, according to CME Group’s FedWatch Tool.

The US central bank held rates steady last week and 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%-5.50% 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% last month. Data for October was revised to show spending rising 0.1% instead of the previously reported 0.2%.

Economists had forecast spending would gain 0.3%.

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 GDP growth estimates for this quarter, which are as high as a 2.7% annualised rate. The economy grew at a 4.9% pace in the third quarter.

Reuters