Inflation fell once again to a 5.5% annual rate in November, as measured by the gauge favored by the Federal Reserve.
The decline in the personal consumption expenditures price index reported Friday morning by the Bureau of Economic Analysis is a sign that inflationary pressures are abating in the face of the Federal Reserve’s campaign to slow economywide spending by hiking interest rates. Nevertheless, inflation is running much hotter than the central bank’s target and dinging household purchasing power.
Core PCE inflation, a measure of inflation that strips out energy and food prices and is generally less volatile, is clocking in at a 4.7% year-over-year rate.
The Fed’s target for inflation is 2%.
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The central bank has been tightening monetary policy at a dramatic pace in a desperate bid to bring down the inflation that has hit households hard and damaged President Joe Biden’s ratings.
Earlier this month, the central bank conducted a downsized half-percentage-point, or 50 basis points, rate increase. That, added to several 75-basis-point increases, marks the largest hikes in four decades. Since the start of the year, the Fed has ratcheted up rates by 425 basis points.
During their December meeting, Fed officials raised their projections for inflation. The median Fed official now sees inflation, as gauged by the PCE index, at 5.6% by the end of the year and just above 3% by the end of 2023. The forecast expects inflation to fall back into around the target range of 2% by the end of 2025.
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More rate hikes are anticipated in the year ahead, although how many more remains an open question.
“Over the course of the year, we’ve taken forceful actions to tighten the stance of monetary policy,” Fed Chairman Jerome Powell said during a press conference after the last meeting. “We’ve covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do.”
