Inflation slowed more than expected in the United States in November, even falling to its lowest level in nearly three years, while consumption held steady, a development welcomed by Joe Biden as he seeks re-election.
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According to the PCE index, an index preferred by the Federal Reserve and released by the Commerce Department on Friday, consumer prices rose 2.6% in November from a year earlier.
Inflation is now below 3.0%. But a downward revision of the October figures showed that at 2.9% it was already below the originally announced 3.1%.
“The progress is remarkable,” stated US President Joe Biden in a press release.
“But make no mistake: Even if my economic plan gets us back on track, our work is far from done. “Prices are still too high for too many Americans,” added the Democratic official, who hopes to be re-elected to the White House in November 2024.
Another measure of inflation, the CPI index, released earlier this month and against which pensions are indexed, fell slightly to 3.1% over a year in November, compared to 3.2% in October.
Fed officials stressed after their Dec. 13 meeting that “inflation has eased over the past year but is still high.”
They expect it to fall to 2.4% within a year by the end of 2024. However, he warned that it would have to wait until 2026 to reach the target level of 2.0% again.
“There is no reason to believe that the final phase of disinflation will be the most difficult,” said Lydia Boussour, an economist at EY.
She emphasizes that “five key elements have already occurred and will provide the perfect combination for disinflation in 2024: lower consumer demand growth, lower rent increases, lower profit margins, lower growth, moderate wages and restrictive monetary policy.”
Consumer confidence is rising
Consumer spending rose 0.2% in November, the start of the holiday season, compared to October, the Commerce Department also said. Household income increased by 0.4%.
“Incomes are up, spending is up and inflation is down. The savings rate has also increased slightly. This report is the best economic news in a long time and comes just in time for the holiday season,” commented Robert Frick, economist at Navy Federal Credit Union.
American consumers are also optimistic about the development of inflation. According to the final estimate released Friday by the University of Michigan, their confidence levels actually rose in December to their highest level since July, after falling for four straight months.
In view of inflation, the Fed has raised interest rates by five percentage points since March 2022. This increases borrowing costs for households and companies and slows consumption and investment, ultimately leading to a reduction in price pressures.
Since July, however, it has been decided not to affect any of this in order not to put too much strain on economic activity and to avoid a recession. Because the full effects of interest rate increases take time to be fully felt in the real economy.
Fed officials are now considering cutting again and are considering multiple rate cuts in 2024.
And if durable goods orders rebounded in November, up 5.4%, it was largely due to new aircraft orders, according to Commerce Department data released Friday.
Durable goods are those that are used for three years or longer, such as cars and household appliances, and whose performance is considered a good indicator of the health of the US economy.
“Recent indicators suggest that economic growth has slowed from its solid pace in the third quarter,” the Fed commented on December 13.
The US GDP figures for the fourth quarter will be published on January 25th.