Investing.com -- Underlying U.S. price growth rose by 0.2% as expected in December, a rate that, if sustained, many economists believe could help cool inflation back down to the Federal Reserve's target.
When compared to the year-ago period, the so-called "core" personal consumption expenditures (PCE) price index, which excludes volatile items like food and fuel, increased by 2.9% last month. The uptick was a deceleration from 3.2% in November, and slower than estimates of 3.0%.
This indicator -- widely known as the Fed's preferred gauge of inflation -- suggests that price gains are continuing to ease back down to the central bank's 2% year-on-year goal.
The overall measure edged up by 0.2% month-on-month, after it had dipped for the first time in over three and a half years in November. Annually, it rose by 2.6%, matching the pace of the previous month, as a rise in food prices offset a decrease in energy costs. Both numbers were in line with expectations.
Signs that once-elevated inflation is being quelled also persuaded Americans to open their wallets during the holiday season. Consumer spending, which accounts for more than two-thirds of overall U.S. economic activity, expanded by 0.7% compared to the prior month, up from November's mark of 0.4%. The personal saving rate slipped to 3.7% from 4.1% in the previous month.
Coupled with Thursday's solid gross domestic product figures, the data could factor into how the Fed approaches potentially lowering interest rates down from more than two-decade highs in the coming months. Late last year, policymakers were expected to roll out cuts as early as March, but easing inflation and resilient growth have pushed back these projections. According to CME Group's (NASDAQ:CME) closely-monitored FedWatch Tool, financial markets are seeing about a 51% chance of a quarter-basis point reduction in May.
Investing.com Senior Analyst Thomas Monteiro argued that the core PCE reading implies that the Fed's bid to defeat inflation without sparking a recession -- a scenario known as a "soft landing" -- is "working on all fronts."
However, Monteiro noted that "fundamentally, there seems to be no immediate, compelling reason for the Fed to pivot before the summer, given that the inflation battle - although apparently under control - remains far from over."
U.S. stock futures were lower in the wake of the PCE release, while the dollar dipped against a basket of other currencies. Yields on the rate-sensitive 2-year and benchmark 10-year U.S. Treasuries, which typically move inversely to prices, inched higher.
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