Washington (AFP) – A key measure of US inflation posted its fastest annual gain in more than two years last month but remained shy of the central bank’s target, the Commerce Department reported Monday.
The data support the widely-held view that the US Federal Reserve will stand pat on monetary policy at a two-day meeting due to begin Tuesday.
The closely watched Personal Consumption Expenditures index, the Fed’s preferred measure of inflation, rose 0.2 percent in December compared to the prior month.
The PCE price index gained 1.6 percent compared to December 2015, the largest year-over-year increase since July 2014 but still short of the Fed’s two percent target.
Despite steady gains in employment, unambiguous signs of mounting inflation have been slow to materialize in the world’s largest economy, making US central bankers wary of raising rates too fast amid a tepid economic recovery.
The Fed raised interest rates last month for only the second time in a decade but is likely to continue watching economic developments before moving again.
Excluding the more volatile food and fuel prices, the so-called core PCE index rose 0.1 percent for the month, 0.1 points below an analyst consensus forecast. And core PCE showed a 1.7 percent gain over December 2015.
The data also showed that consumers continued to spend faster than they earned, with personal incomes rising 0.3 percent for the month while consumption expenditures rose 0.5 percent.
Analysts noted however that the increase in spending was largely driven by energy consumption.
Indeed, two-thirds of the increase resulted from greater spending on utilities, “prompted by the return of near-normal temperatures, after the very warm early fall depressed demand for heating energy,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a client note.
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