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Business

Fed’s preferred inflation gauge hit lowest level in 3 years in December

By
Ariel Zilber
Published Jan. 26, 2024
Updated Jan. 26, 2024, 4:34 p.m. ET

The Federal Reserve’s favorite inflation gauge rose just 0.2% from November to December — the lowest level in nearly three years.

The latest data on the personal consumption expenditures price index — also known as “core inflation” which strips away food and energy costs — is likely to whet the appetites of Wall Street investors who are eagerly anticipating interest rate cuts by the Fed this year.

“The big picture is that the Fed doesn’t need to worry that stronger economic growth will stoke inflation because it hasn’t,” Sonu Varghese, global macro strategist at Carson Wealth, told CNBC.

“We are expecting rate cuts in 2024.”

Compared with a year earlier, so-called “core” prices climbed 2.9% in December — the smallest such increase since March 2021.

Economists consider core prices a better gauge of the likely path of inflation.

The cooling down of inflation comes amid more good news for the US economy.

The latest data suggest that inflation is cooling. The image above shows a shopper at a grocery store in Illinois on Jan. 19.
The latest data suggest that inflation is cooling. The image above shows a shopper at a grocery store in Illinois on Jan. 19. AP

The nation’s economy grew at an unexpectedly brisk 3.3% annual pace from October through December as Americans showed a continued willingness to spend freely despite high interest rates and price levels that have frustrated many households.

Thursday’s report from the Commerce Department said the gross domestic product — the economy’s total output of goods and services — decelerated from its sizzling 4.9% growth rate the previous quarter.

Compared with a year earlier, so-called “core” prices climbed 2.9% in December -- the smallest such increase since March 2021.
Compared with a year earlier, so-called “core” prices climbed 2.9% in December — the smallest such increase since March 2021. Shutterstock / The Image Party

Solid consumer spending propelled the growth, capping a year that had begun with widespread expectations of a recession.

Instead, the economy grew 2.5% in 2023, up from 1.9% in 2022.

Despite the cooling down of inflation, Fed officials have been cautious about declaring a victory over surging price hikes.

The nation’s economy grew at an unexpectedly brisk 3.3% annual pace from October through December.
The nation’s economy grew at an unexpectedly brisk 3.3% annual pace from October through December. AFP via Getty Images

While investors are eager for interest rate cuts, central bankers are likely to keep rates the same when they meet next week.

On Wall Street, stocks were flat on Friday morning though the major indexes recorded a winning week.

The S&P 500 and the Nasdaq rose by 1.1% and 0.9% for the week, respectively, while the Dow gained 0.6%.

With Post Wires