Last month, there was a rise in prices in the United States.
Also in December, an increase in consumer spending was recorded in the mentioned country. The growth of this indicator and the similar price dynamic indicate that the Federal Reserve may postpone interest rate cuts for some time in the current year.
The personal consumption expenditures (PCE) price index in the United States increased by 0.3% in December. In November, this indicator grew by 0.1%. The relevant information was published on Friday, January 31, by the US Commerce Department’s Bureau of Economic Analysis.
Economists polled by the media predicted that PCE would increase by 0.3% in December.
In the 12 months through December, the mentioned index grew by 2.6%. In November, the corresponding growth was 2.4%.
It’s worth noting that the advance report on the dynamic of the gross domestic product (GDP) of the United States for the fourth quarter of 2024, published last Thursday, January 30, indicates increased price pressure amid high levels of consumer spending.
This week, the Federal Reserve decided to keep its benchmark overnight interest rate in the range of 4.25% to 4.5%. Since September, when the central bank of the United States began easing monetary policy, the corresponding indicator has been reduced by 100 basis points. It is noteworthy that the US financial regulator, commenting on its January decision on the cost of borrowing, did not mention the progress in achieving the inflation target of 2%. At the same time, in statements following previous monetary policy meetings, the Fed drew attention to the mentioned progress. Currently, according to media reports, the prevailing opinion among experts is that the US financial regulator will not cut interest rates until June.
Excluding the volatile food and energy components, the PCE price index rose 0.2% in December. In November, the increase in this indicator was 0.1%.
In the 12 months through December, the so-called core inflation grew by 2.8%. In November, a similar rate of the upward dynamic of the mentioned indicator was recorded.
The Fed predicts only two interest rate cuts this year. It is worth noting that in September, the US financial regulator projected four such decisions. In this case, there is an impact of uncertainty related to the intentions of the President of the United States, Donald Trump, to cut taxes, raise tariffs on imported goods, and tighten immigration policy. Economists characterize the relevant measures as inflationary.
Concerns about Washington’s tightening tariff policy have already forced US consumers to stock up on goods. These actions are aimed at reducing the negative impact of the expected price increase. The mentioned behavior also contributed to an increase in consumer spending in the United States in the fourth quarter of last year. The rate of increase in the corresponding indicator was the highest in almost two years. This dynamic has become a factor supporting the growth of the US economy. Experts interviewed by the media expect that pre-emptive buying will continue.
Consumer spending, which accounts for more than two-thirds of total economic activity in the United States, rose 0.7% in December. In November, this indicator increased by 0.6%.
In the fourth quarter of 2024, the United States economy demonstrated growth of 2.3% year-on-year. A sharp increase in consumer spending offset drags from inventory almost being depleted and a strike at Boeing.
Strong December consumer spending sets the economy on a higher growth trajectory in the first quarter of 2025.
