The inflation rate monitored by the Fed falls to 5.5% in November

Inflation, which started to rise a year and a half ago as the economy recovered from the 2020 COVID-19 recession, is still well above what the Fed wants to see.

WASHINGTON — A measure of inflation closely watched by the Federal Reserve slowed last month in another sign that a long rise in consumer prices appears to be fading.

The Friday report from commercial department showed that prices rose 5.5% yoy in November, compared with a revised 6.1% rise in October and the smallest increase since October 2021. Excluding volatile food and energy prices was what is known as core inflation increased by 4.7% compared to the previous year. That was also the smallest increase since October 2021.

On a monthly basis, prices rose 0.1% from October to November after rising 0.4% in the previous month. Core prices increased by 0.2%.

Inflation, which started to rise a year and a half ago as the economy recovered from the 2020 coronavirus recession, is still well above the 2% year-over-year growth the Fed wants to see.

The central bank has raised interest rates seven times since March in a bid to bring consumer prices under control.

Higher prices and borrowing costs could weigh on American consumers. Their spending rose just 0.1% from October to November and didn’t rise at all after adjusting for higher prices.

“We expect fiscal spending to slow as the Fed continues to hike rates in 2023,” wrote Rubeela Farooqi, chief US economist at High Frequency Economics, in a research note.

However, Americans’ after-tax income rose 0.3% in November, even after adjusting for inflation.

The Fed is believed to be even more closely monitoring the Commerce Department’s inflation gauge released Friday, called the Personal Consumption Expenditure Index, than the more familiar Labor Department CPI. CPI rose 7.1% in November from 12 months earlier, compared to June’s 9.1% year-on-year increase, the largest of its kind in four decades.

The PCE index tends to show a lower inflation rate than the CPI. This is partly because the sharp rise in rents carries twice as much weight in the CPI as in the PCE.

The PCE price index also attempts to account for changes in people’s shopping behavior as inflation rises. For example, this can be used to record when consumers switch from expensive national brands to cheaper private labels.

https://www.kvue.com/article/news/nation-world/inflation-measure-watched-by-the-fed-eases-november-2022/507-bf5d327d-ae38-4443-bd1b-87b9a3086fcf The inflation rate monitored by the Fed falls to 5.5% in November

Laura Coffey

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