WASHINGTON (AP) — An inflation gauge that is closely watched by the Federal Reserve barely rose last month in a sign that price pressures cooled after two months of sharp gains.
Friday’s report from the Commerce Department showed that prices rose just 0.1% from October to November. Excluding the volatile food and energy categories, prices also ticked up just 0.1%, after two months of outsize 0.3% gains.
The milder inflation figures arrive two days after Federal Reserve officials, led by Chair Jerome Powell, rocked financial markets by revealing that they now expect to cut their key interest rate just two times in 2025, down from four in their previous estimate. Stickier inflation, Powell said, “might be the single biggest factor” causing the central bank to reduce the number of rate cuts it envisions. Fewer Fed rate cuts would likely mean that mortgage rates and other consumer borrowing costs would remain elevated.
Friday’s data did contain one sign of still-persistent inflation: Year-over-year inflation edged up to 2.4% in November from 2.3% in October and above the Fed’s 2% inflation target. But year-over-year “core” prices, which exclude volatile food and energy costs, were unchanged at 2.8%. The Fed pays closer attention to the core figures, which are regarded as a better sign of where inflation is likely headed.
The modest monthly inflation figures in Friday’s report point to one likely reason why the Fed was willing to cut its benchmark interest rate Wednesday: Its preferred inflation gauge, known as the personal consumption expenditures price index, is coming in lower — and closer to the Fed’s target — than the higher-profile consumer price index. The core CPI, for example, was 3.3% in November.
Friday’s report also showed that consumers increased their spending by a solid 0.4% from October to November, a sign that households continue to propel the economy. On Thursday, the government reported that the U.S. economy grew at a healthy 3.1% annual rate last quarter, largely thanks to consumer demand.
Incomes also rose 0.3% last month, faster than prices — a trend which, if it continues over time, should help Americans adjust to higher prices.
Inflation, according to the measure released Friday — the personal consumption expenditures price index — has plummeted from a peak of 7.2% in June 2022 to 2.1% in September. The Fed’s tool for fighting inflation is to steadily raise borrowing costs across the economy, which tends to cool spending and growth.
On Wednesday, policymakers revised their expectation for inflation by the end of 2025 to 2.5%, slightly above its current rate. The officials still expect core prices to fall slightly by the end of next year, also to 2.5%.
