US Fed’s favoured inflation gauge accelerates further in December

People walking in front of a store.— AFP/File

WASHINGTON: The US Federal Reserve’s preferred inflation measure rose for a third month in a row in December, according to government data published Friday, fuelling calls for an extended pause in interest rate cuts.

The personal consumption expenditures (PCE) price index rose 2.6 per cent in the 12 months to December, up from 2.4 per cent in November, the Commerce Department said in a statement.

This was in line with the median forecasts from economists surveyed by Dow Jones Newswires and The Wall Street Journal. Inflation has been moving away from the Fed’s long-term target of two percent since September, causing issues for policymakers at the US central bank.

The Fed has a dual mandate to tackle inflation and unemployment, and does so mainly by raising and lowering short-term lending rates, which then trickle through into consumer and producer borrowing costs.

On Wednesday, the Fed voted unanimously to pause rate reductions following three consecutive cuts, holding the bank´s benchmark lending rate at between 4.25 and 4.50 per cent.

While inflation continues to accelerate, economic growth has been strong, and the labour market has remained resilient, with the unemployment rate ticking down to 4.1 per cent last month. “There is still more work to be done to bring inflation closer to our two percent goal,” Fed governor Michelle Bowman told a conference in New Hampshire on Friday, according to prepared remarks.

“I would like to see progress in lowering inflation resume before we make further adjustments to the target range,” added Bowman, who is a permanent voting member of the Fed’s rate-setting committee.

On a monthly basis, the PCE price index rose 0.3 per cent. Stripping out volatile food and energy costs, the so-called core index rose by 0.2 per cent from a month earlier, and by 2.8 per cent from a year ago.

“The last thing you’re going to want to do is cut rates now, if inflation is being stubborn, going the wrong way, still above two percent,” Allianz Trade senior North America economist Dan North told AFP earlier in the week.