Inflation in the United States for November came in at 2.8%, slightly above the expected rate of 2.7%. This figure matches the previous year's rate of 2.8% as well. When we look at the core Personal Consumption Expenditures (PCE) index, which excludes food and energy costs, it also registered at 2.8%, aligning with expectations. Month-over-month, the core PCE increased by 0.2%, consistent with forecasts, although its unrounded figure showed a slightly lower increase than the month before.
In terms of consumer spending and income for November, personal income rose by 0.3%, which fell short of the anticipated 0.4%, and was down from a more robust increase of 0.6% in the prior month. On a brighter note, personal spending grew by 0.5%, exactly matching expectations and showing an uptick from the previous month's 0.4%. Real personal spending saw a notable rise of 0.3% compared to a mere 0.1% last month. However, the savings rate dipped to 3.5%, down from 3.7% previously.
This report is complicated due to data collection issues linked to the recent government shutdown. Consequently, statisticians had to rely on Consumer Price Index (CPI) data to fill in gaps, which involved using the geometric mean of CPI figures from September and November to estimate October's missing data.
Market reactions to this report were relatively subdued, primarily because the results were mostly in line with expectations. Given the complications arising from the government shutdown, the entire dataset is challenging to fully trust. Although the spending figures are promising for GDP growth and suggest a positive trend in the economy, inflation remains significantly above the Federal Reserve's target of 2%—a worrying sign for economic stability.
To provide some context, the Personal Consumption Expenditures (PCE) report is released monthly by the U.S. Bureau of Economic Analysis (BEA) and measures consumer spending on goods and services, which constitutes about two-thirds of all economic activity in the country. The report is particularly known for its PCE Price Index, which the Federal Reserve regards as its 'gold standard' for assessing inflation. This index differs from the more commonly referenced Consumer Price Index (CPI) because it encompasses a wider range of expenses, including those that are paid on behalf of consumers, like employer-sponsored healthcare.
Moreover, the PCE uses a 'chain-type' formula that accommodates changes in consumer behavior. For instance, if beef prices surge and consumers switch to chicken, the PCE reflects that transition more effectively than the CPI, which often lags in capturing such shifts.
Investors and policymakers typically monitor two versions of this report: the 'Headline' PCE, also referred to as the deflator, and the 'Core' PCE, which excludes the more volatile categories of food and energy prices to give a clearer picture of long-term inflation trends.
