Despite consumers’ assessment of economic conditions, new survey data suggest they have become more confident about the economy.
The Federal Reserve’s preferred inflation gauge cooled unexpectedly in September while Americans’ incomes outpaced economists’ forecasts.
Inflation in the core personal consumption expenditures (PCE) price index—excluding volatile food and energy—slipped to 2.8 percent from 2.9 percent in August, according to the Bureau of Economic Analysis on Dec. 5. Economists had expected the measure to hold at 2.9 percent.
On a monthly basis, core PCE rose 0.2 percent, in line with market projections.
Headline PCE inflation ticked up to 2.8 percent year over year from 2.7 percent the prior month, while monthly PCE climbed 0.3 percent, also matching expectations.
Fed officials place greater emphasis on PCE than on the consumer price index. PCE inflation is updated more frequently and is broader, concentrating on both urban and rural households.
Policymakers also focus on the core measure because it can be a better indicator of long-term inflation trends. Additionally, energy and food prices are greatly influenced by market dynamics rather than monetary policy.
PCE data, meanwhile, also revealed that personal incomes rose 0.4 percent, topping the market consensus of 0.3 percent. Personal spending jumped 0.3 percent, in line with expectations.
The bureau’s PCE report for September was delayed due to the federal government shutdown, which suspended data collection and reporting efforts.
The next batch of inflation data will be released on Dec. 18, when the Bureau of Labor Statistics publishes the November consumer price index (CPI) report.
Estimates suggest the annual inflation rate will hold steady at 3 percent, according to the Cleveland Federal Reserve’s Inflation Nowcasting model.
Despite consumers’ grim assessment of current economic conditions in recent months, new survey data suggest they have become more confident about the U.S. economy heading into the holiday season.
The preliminary December University of Michigan’s Consumer Sentiment Index ticked up to 53.3, higher than expected, from 51 in November—the first increase in five months.
Consumers’ one-year inflation outlook declined to 4.1 percent from 4.5 percent. Five-year inflation expectations slipped to 3.2 percent from 3.4 percent.
This could be welcomed news for the U.S. central bank.
By Andrew Moran
