The Federal Reserve’s preferred inflation gauge rose measurably in December even as alternate inflation readings showed slower price growth, newly published data indicates.
Updates to the personal consumption expenditures (PCE) price index reflect 0.4% growth across all categories on a monthly basis in December, pushing the pace of annual PCE inflation to 2.9%, an uptick from November’s 2.8% annual pace.
Excluding volatile food and energy prices, core PCE inflation rose 3% over the year, while matching the 0.4% monthly rise across the all-items index, in line with expectations of economists polled by FactSet.
The official figures released Friday by the Bureau of Economic Analysis affirm the Fed’s internal PCE estimates for December, disclosed by Fed Chair Jerome Powell after January’s decision to pause on further rate cuts.
“The story behind that is modestly positive in that, most of the overshoot was in goods prices,” said Powell last month, “which we think is related to tariffs, and ultimately we think those will not result in inflation as opposed to a one-time price increase.”
Nevertheless, minutes released Wednesday from January’s Federal Open Market Committee meeting showed lingering concerns among a bevy of Fed officials about how annual growth in consumer prices has remained well above the Fed’s stated 2% target.
The potential for a future rate hike even crept into their discussions last month.
“Several participants indicated that they would have supported a two-sided description of the Committee’s future interest rate decisions,” the minutes read, “reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation remains at above-target levels.”
A blockbuster decision handed down by the U.S. Supreme Court on Friday struck down President Donald Trump’s signature tariff policy, throwing great uncertainty into the future of consumer price inflation and the path of U.S. monetary policy in 2026.
The consumer price index, a separate inflation gauge published by the Bureau of Labor Statistics that feeds into the PCE index, registered 2.4% annual growth in January, cooler than economists had expected but keeping the Fed’s rate-cut options open.
