Inflation Holds Steady: Core PCE Still Above Target

The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures (PCE) price index, edged higher in December, indicating that inflation remains modestly elevated above the central bank’s target.

While the overall PCE increased to 2.6% year-over-year, the core PCE, which excludes volatile food and energy prices, remained unchanged at 2.8%, matching market expectations. 1 This persistent level, slightly above the Federal Reserve’s 2% target, highlights the ongoing challenge of taming inflation.  
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Signs of Progress:

Despite the steady headline figure, closer examination reveals encouraging signs.

Moderating Core Inflation: Over the past three months, core PCE inflation has moderated to an annualized rate of 2.2%, down from 2.8% in the preceding three-month period. This suggests a gradual cooling of underlying price pressures.
Shorter-Term Trends: Examining inflation over shorter periods reveals a more positive trajectory. Six-month core PCE inflation has declined from 2.7% in July to 2.3% currently.
Market Reaction:

The US Dollar Index experienced a slight increase following the release of the PCE data, rising 0.07% to 108.25.

While inflation remains above the Federal Reserve’s target, recent data suggests a gradual moderation in underlying price pressures. This trend, while encouraging, underscores the ongoing challenge of achieving and maintaining price stability.