PCE Index Hit Highest Level in November Since 1982

The inflation data released on Thursday came alongside data on incomes and spending that showed that consumers saved less in November and that their consumption barely budged after adjusting for inflation, which could simply be a sign that consumers did their holiday shopping early amid supply chain snarls. Should slower spending last, weaker demand could eventually weigh down price increases. But the United States could end up in an unpleasant situation in which growth is less robust while inflation is still high.

“Consumers are able to purchase less because prices are rising, and that is starting to put the brakes on real spending growth,” said Andrew Hunter, senior U.S. economist at Capital Economics. That could eventually push down prices, he said, but “inflation is likely to remain certainly higher than the Fed wants for a while.”

The fresh inflation reading is further evidence of the pop in prices that a more timely and related measure — the Consumer Price Index — had previously shown.

In doing so, it keeps pressure on officials at the Fed, who are tasked with keeping inflation moderate and setting the stage for full employment, and who have grown increasingly worried about the surge in prices. They pivoted on policy this month, speeding up their plans to cut back on economic support and preparing to raise interest rates early next year if necessary. Higher interest rates can weaken down demand for everything from homes to cars, helping to slow down the economy and restrain inflation.

The big question for officials at the central bank — and in the Biden administration — is what will come next. With the Omicron variant of the coronavirus surging around the world, it is unlikely that tangled supply chains will return to normal quickly. At the same time, rising housing costs could keep inflation high even as some of the most painful trends of 2021, including a surge in used-car prices tied to a computer chip shortage, moderate.

Article source: https://www.nytimes.com/2021/12/23/business/economy/inflation-pce-index-fed.html