PCE Price Index: Consumer Prices Jumped 5.7% In Last 12 Months, Highest In 39 Years

PCE Price Index: Consumer Prices Jumped 5.7% In Last 12 Months, Highest In 39 Years

U.S. consumer prices jumped 5.7% over the last 12 months ending November, the rapid increase in 39 years. Americans have received the gift of inflation this holiday season that is weighing on their pockets, and it is unlikely that higher prices will cool down anytime soon. 

In comparison with the previous month, Personal Consumption Expenditures, a measure of root inflation in the U.S. economy, rose 0.6 percent in November, followed by a sharp increase of 1.4 percent in October, as per the data released by the Bureau of Economic Analysis on Thursday. 

While the CPI is the popular price metric, the Federal Reserve prefers using the personal consumption expenditures price index in deciding its interest-rate policies against inflation. The PCE price index keeps tabs on ‘actual purchases’ consumers make in a month, while the CPI tracks a fixed market basket of goods.

Energy prices saw an increase of 34.0 percent, while food prices got up by 5.6 percent from the year-ago period. Excluding food and energy, the PCE price index for November rose to 4.7% from the same period a year ago, a massive jump since September 1983.

Thursday’s data from Commerce shows that inflation posed a hindrance in consumer spendings. Americans did not spend much on goods compared to services last month. Their disposable incomes adjusted for inflation contracted 0.2 percent in November from the preceding month.

Notably, the price rise in November came at a slower pace — 0.6% compared to a 0.7% gain in the preceding month. Striping out food and energy costs, prices rose 0.5%, same as registered in October.

Englund sees the core price index break the records in the month of February, “given 2020 comparisons that show a big core price acceleration starting last March.”

The price rise in November outweighed the increase that Americans had in their incomes. 

Personal income, reported in November, was $90.4 billion, slightly down from the significant rise of 0.5% reported in the preceding month.

Disposable personal income (DPI) stood at $70.4 billion, with the same rate of increase of 0.4% as observed in October. But Personal consumption expenditures (PCE) exceeded income measures in November, rising 0.6%, or $104.7 billion, of which $97.4 billion was spent on services and $7.4 billion on goods. The gain for the month was markedly below the 1.4% surge in October.

“The increase in services was widespread, led by housing and utilities. Within goods, an increase in nondurable goods (mainly gasoline and other energy goods) was partly offset by a decrease in durable goods (led by recreational goods and vehicles as well as motor vehicles and parts),” said BEA in the press release. 

“Consumer spending rose a moderate 0.6 percent m/m last month, entirely led by services outlays. But inflation continues to take a bite out of consumers’ wallets as real spending was disappointingly flat when adjusting for higher prices,” said Kathy Bostjancic, chief US financial economist at Oxford Economics.

Personal savings stood at $1.25 trillion in November. The personal saving rate, the percentage of people’s incomes left after paying taxes and spending money, was 6.9 percent, a marginal decrease from the month before.