Inflation retreated further in November and consumers picked up their spending as moods improved, forecasters said, adding to signs that price pressures can be contained without a recession, WSJ reported
Economists surveyed by The Wall Street Journal estimate that the core personal-consumption expenditures price index, which excludes volatile food and energy categories, rose 0.1% in November from the previous month, a slowdown from 0.2% in October. That would be the slowest rise since August. On the year, they estimate core inflation cooled to 3.3% in November, from 3.5% in the previous month.
Some forecasters see core inflation of 2% on a six-month annualized basis, which matches the Federal Reserve’s inflation target for year-over-year inflation.
Consumers likely boosted spending 0.3% in November on the month, following a 0.2% rise in October. Personal income likely rose 0.4%, up from 0.2%. The Commerce Department is set to release the latest data on inflation, personal spending and income Friday at 8:30 a.m. ET.
Separate data Friday from the University of Michigan will show the final reading of December consumer sentiment. A preliminary reading showed a 13% increase from the prior month.
Americans’ incomes are rising when adjusting for price changes “because of lower inflation, steady job growth and steady wage gains,” said Bernard Yaros, lead U.S. economist at Oxford Economics. “And that bodes favorably for real consumer spending.”
Coming in for a soft landing
The U.S. economy defied predictions that it would tip into recession in 2023, largely because consumers kept up their spending despite higher prices and the Fed’s interest-rate increases.
Many economists now say the economy will likely cruise to a so-called soft landing in which inflation returns to the Fed’s 2% annual target, measured under the personal-consumption expenditures price index, without triggering a recession.
Fed officials, who spent much of 2022 and 2023 pushing interest rates up to the highest level in 22 years, have penciled in three rate cuts next year, according to projections released last week, in response to inflation’s faster-than-expected deceleration.
“Inflation keeps coming down, the labor market keeps getting back into balance, and it’s so far so good,” Federal Reserve Chair Jerome Powell said at a press conference following the central bank’s December meeting. “We kind of assume that it will get harder from here, but so far it hasn’t.”
Strong job growth is to thank for that.
Employers have kept hiring, although the pace of growth has slowed. Wage gains have eased, but inflation has cooled faster, leaving many workers better off.
Higher pay and strong hiring encouraged more people to get off the sidelines. The labor-force participation rate for workers between the ages of 25 and 54—83.3% in November—is trending near the highest rate in more than two decades. That makes it easier for employers to find workers, which should prevent wages from rising so fast that they put upward pressure on inflation.
“The big surprise is on the domestic labor market side: how strong the labor force has grown,” said Michael Gapen, head of U.S. economics at Bank of America. “If you’re adding more people to the ranks of the employed, total income in the economy is rising and total spending is rising.”
