Fed’s Preferred Core Inflation Gauge Slows to Below 3% Rate

The Federal Reserve’s preferred gauge of underlying inflation rose at the slowest annual pace in nearly three years while consumers spent at a robust rate, keeping the debate alive as to whether officials will soon cut borrowing costs.

The so-called core personal consumption expenditures price index, which strips out the volatile food and energy components, increased 2.9% in December from a year earlier, according to the Bureau of Economic Analysis. From a month ago, it advanced 0.2%.

Inflation-adjusted consumer spending climbed 0.5% in December for a second month, the biggest back-to-back increase in nearly a year. Real disposable income, the main supporter of consumer spending, advanced 0.1%, the smallest in three months.

Metric Actual Estimate
Real consumer spending (MoM) +0.5% +0.3%
PCE price index (MoM) +0.2% +0.2%
PCE price index, excl. food & energy (MoM) +0.2% +0.2%
PCE price index (YoY) +2.6% +2.6%
PCE price index, excl. food & energy (YoY) +2.9% +3.0%