US prices increased in December while consumer spending surged, suggesting that the Federal Reserve may postpone cutting interest rates for some time this year.
The personal consumption expenditures (PCE) price index rose 0.3% last month after an unrevised 0.1% gain in November, the Commerce Department’s Bureau of Economic Analysis reported on Friday.
Economists polled by Reuters had predicted a 0.3% rise. On a year-on-year basis, the PCE price index advanced 2.6% in December, up from 2.4% in November.
The data was part of the advance gross domestic product report for the fourth quarter released on Thursday, which showed price pressures intensifying in the final three months of the year, driven by strong consumer spending.
The Federal Reserve monitors PCE price measures for monetary policy decisions. On Wednesday, the central bank kept its benchmark overnight interest rate within the 4.25%-4.50% range, maintaining a 100-basis-point reduction since September when it began its policy easing cycle.
However, the latest policy statement omitted previous references to inflation having “made progress” toward the Fed’s 2% target, with no rate cut expected before June.
Excluding the volatile food and energy components, the core PCE price index increased by 0.2% last month following an unrevised 0.1% rise in November. On a year-on-year basis, core inflation remained at 2.8%.
The Fed has projected only two rate cuts this year, down from the four it estimated in September. This revision reflects uncertainty over the economic impact of President Donald Trump’s plans for tax cuts, broad tariffs on imports, and a crackdown on immigration, which economists warn could be inflationary.
Concerns over tariffs have prompted consumers to stock up on goods in anticipation of higher prices, driving consumer spending to its fastest growth rate in nearly two years in the fourth quarter. Economists expect this pre-emptive buying to have continued into January.
Consumer spending, which accounts for more than two-thirds of US economic activity, jumped 0.7% in December after an upwardly revised 0.6% increase in November. The previous estimate had reported a 0.4% rise for November.
The economy expanded at a 2.3% annualised rate in the fourth quarter, as surging consumer spending offset the impact of depleted inventories and a Boeing strike in the autumn that weighed on business investment in equipment.
Strong consumer spending in December positions the economy for higher growth in the first quarter of the year.
Faridah Abdulkadiri
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