Inflation closed out 2024 on a strong note, according to the Commerce Department’s report on Friday. The personal consumption expenditures price index rose 2.6% year-over-year in December, exceeding the Federal Reserve’s target and matching the Dow Jones estimate. The core PCE, excluding food and energy, also met expectations at 2.8%, the same as the previous month. Historically, the Fed has viewed core PCE as a more reliable indicator of long-term inflation.
Monthly, headline PCE increased by 0.3% and core PCE by 0.2%, aligning with forecasts. The Fed aims for annual inflation at 2%, a level not seen since February 2021. Chicago Fed President Austan Goolsbee commented that the PCE data was better than anticipated, expressing confidence in reaching the 2% target.
Food prices rose by 0.2% while energy surged by 2.7% in December. Durable goods prices experienced deflation, dropping by 0.4%, while nondurables saw a 0.5% increase. The report followed the Federal Reserve’s decision to maintain its key interest rate between 4.25%-4.5%, pausing after three consecutive rate cuts totaling a full percentage point.
Inflation remains above the Fed’s target, with Clark Bellin, chief investment officer at Bellwether Wealth, noting the irony of rate cuts amid elevated inflation. Fed Governor Michelle Bowman expects inflation to slow in 2025 but advocates for a cautious approach until clear signs of deceleration emerge, especially given uncertainties in fiscal policy.
Personal income rose by 0.4% in December, in line with forecasts, while spending increased by 0.7%, slightly exceeding estimates. The Bureau of Labor Statistics reported that the employment cost index rose by 0.9% in Q4 2024, aligning with expectations and slightly above the previous quarter. On an annual basis, the ECI increased by 3.8%, slightly below the Q3 reading.
