Fed’s preferred measure of US inflation falls in November

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US rate-setters’ preferred measure of inflation fell by more than expected in November, bolstering investors’ expectations of rate cuts next year.

The core personal consumption expenditures price index showed prices rose by 3.2 per cent last month, down from a revised figure of 3.4 per cent in the year to October, according to data from the Bureau of Economic Analysis.

The month-on-month increase in the core measure — which removes price changes for more volatile items such as food and energy, and is seen as a better gauge of underlying price pressures — hit 0.1 per cent. That was on par with the revised October figure. Economists polled by Reuters had expected a reading of 0.2 per cent for November.

The November PCE figure is the latest piece of data to offer good news on price pressures, adding to hopes that the US Federal Reserve is winning an almost two-year long battle against inflation.

Fed officials expect to make three rate cuts next year, calling time on a series of rate rises that have left the federal funds target at a 22-year high of between 5.25 per cent and 5.5 per cent.

While officials have pushed back against market bets of cuts as soon as March, they appear confident that the US economy will secure a soft landing, with inflation expected to drift back to their 2 per cent goal with only a small rise in unemployment.

Annual headline PCE fell to 2.6 per cent from 2.9 per cent in October.

Additional reporting by Jennifer Hughes and Jaren Kerr in New York