US prices increased in December while consumer spending surged, suggesting that the Federal Reserve could delay cutting interest rates for some time this year.
The personal consumption expenditures price index rose 0.3 percent last month after an unrevised 0.1 percent gain in November, the Commerce Department’s Bureau of Economic Analysis said on Friday. Economists polled by Reuters had forecast the PCE price index climbing 0.3 percent. In the 12 months through December, the PCE price index advanced 2.6 percent after rising 2.4 percent in November.
The data was included in the advance gross domestic product report for the fourth quarter published on Thursday, which showed price pressures picking up in the final three months of the year against the backdrop of robust consumer spending.
The US central bank tracks the PCE price measures for monetary policy. The Fed on Wednesday left its benchmark overnight interest rate in the 4.25 percent-4.50 percent range, having reduced it by 100 basis points since September when it started its policy easing cycle.
The accompanying policy statement did not include the reference to inflation having “made progress” toward the Fed’s 2 percent target. No rate cut is expected before June.
Excluding the volatile food and energy components, the PCE price index rose 0.2 percent last month after an unrevised 0.1 percent increase in November.
In the 12 months through December, the so-called core inflation advanced 2.8 percent after increasing 2.8 percent in November.
The Fed has forecast only two rate cuts this year, down from the four it had projected in September. That reflected uncertainty on the economic impact of President Donald Trump’s plans for tax cuts, broad tariffs on imports and an immigration crackdown, which economists view as inflationary.
Fears over tariffs have sent consumers rushing to stock up on goods to avoid higher prices.
That has helped to power consumer spending, which notched its fastest growth pace in nearly two years in the fourth quarter, sustaining the economic expansion. Economists expect pre-emptive buying continued in January.
Consumer spending, which accounts for more than two-thirds of US economic activity, jumped 0.7 percent in December after an upwardly revised 0.6 percent rise in November. Spending was previously reported to have gained 0.4 percent in November.
The economy grew at a 2.3 percent annualised rate in the fourth quarter as the surge in consumer spending offset drags from inventories almost being depleted and a strike at Boeing in the autumn weighing on business spending on equipment.
Strong consumer spending last month sets the economy on a higher growth trajectory heading into the first quarter.
By Lucia Mutikani; Editing by Chizu Nomiyama
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