Key Inflation Gauge Pops Again, This Time Hitting Highest Level In Nearly 40 Years

The Federal Reserve's preferred inflation gauge, the so-called PCE price index, vaulted again in November, this time hitting its highest level in nearly four decades and delivering a fresh data point reinforcing the persistence of inflationary pressures.

The Commerce Department reported on Dec. 23 that the headline Personal Consumption Expenditures (PCE) price index rose by 5.7 percent in the 12 months through November. That's a higher pace of inflation than the 5.1 percent logged in October, which was the highest since 1990, and nearly three times higher than the Fed's inflation target of 2 percent. It's also the highest level since July 1982, when PCE inflation hit 5.8 percent.

Meanwhile, the so-called core PCE price index, which excludes the volatile categories of food and energy and is the inflation gauge the Fed relies on most heavily when calibrating monetary policy, rose in the year through November at 4.7 percent. That's well above October's over-the-year rate of 4.2 percent and slightly higher than forecasts of 4.5 percent. It's also the fastest pace since 1989.

Some economists warn that underlying inflationary pressures, which the core PCE measure reflects, could intensify further. Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note that he expects even more upside for core PCE inflation, predicting the gauge has "further to rise before peaking in February."

The new figures follow a number of other data releases pointing to the persistence of inflation, including the third-quarter PCE inflation coming in at 5.3 percent and the consumer price index (CPI) measure rising in the year through November at 6.8 percent, with the latter gauge surging to its highest level in nearly 40 years.

Commenting on the consumer price hikes, Bankrate Chief Financial Analyst Greg McBride told The Epoch Times in an emailed statement that inflation rising faster than wages was dragging down consumer confidence. He predicted that "it is only a matter of time before it impacts consumer spending in a material way." Consumer spending is a key driver of the U.S. economy, accounting for around two-thirds of output.

Richard Curtin, director of the University of Michigan's closely watched Consumer Sentiment Index, a confidence measure closely watched by analysts and investors, said that worries about inflation recently outpaced concerns about the jobs situation.

"When directly asked whether inflation or unemployment was the more serious problem facing the nation, 76 percent selected inflation while just 21 percent selected unemployment," Curtin said in a statement that accompanied the latest Michigan University survey reading for early December, which showed a slight uptick in consumer confidence compared to November's decade low.

A separate sentiment gauge issued by the Conference Board showed consumer confidence rising slightly in December from the prior month as concerns about inflation eased somewhat from November when they hit a 13-year high. Still, the persistence of inflation and a possible rise in COVID-19 infections are likely to be a drag on consumer confidence and spending going forward.

"Looking ahead to 2022, both confidence and consumer spending will continue to face headwinds from rising prices and an expected winter surge of the pandemic," Lynn Franco, senior director of economic indicators at The Conference Board, said in a statement.

Two-thirds of U.S. adults don't expect their personal finances to improve in 2022, with more than half of this group blaming inflation for the pessimistic view of their future money situation, according to Bankrate's December Financial Security Index.

High prices, along with signs of continued labor market firming, have also prompted the Fed to accelerate the pace of scaling back stimulus, paving the way for faster rate hikes.

Inflation has also become a pain point for President Joe Biden. A recent poll showed that the most popular answer to the question of what's driving higher prices was Biden administration policies.

Biden has acknowledged the concerning impact of inflation on Americans, most recently in remarks at the White House on Tuesday.

"You should be worried about it because it's a devastating thing for people who are working class and middle-class folks. It really hurts," Biden said, while again reiterating his view that Congress passing his Build Back Better agenda would help tame runaway prices.

By Tom Ozimek

Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he's ever heard is from Roy Peter Clark: 'Hit your target' and 'leave the best for last.'