Fed's Favorite Inflation Gauge Rises As Predicted, Consumer Spending Jumps At Fastest Pace In 9 Months (UPDATED)

Editor’s note: This story has been updated with additional details.

The Federal Reserve’s preferred inflation measure surged as predicted last month, quelling headwinds for the central bank’s goal of gradually reaching the 2% target, while a strong surge in personal spending continued to reiterate the health of U.S. consumers.

The Personal Consumption Expenditures price index rose 2.6% in December 2024 on a year-over-year basis, according to data released Friday. This means an acceleration from the previous 2.4% but in line with economic forecasts of 2.6%, as tracked by TradingEconomics estimates.

It’s also the third consecutive increase in annual PCE inflation, following a low of 2.1% in September last year. On a monthly basis, the PCE price index rose 0.3%, up from 0.1% in the prior month, but in line with expectations.

Core PCE inflation, which excludes volatile energy and food prices, held steady at 2.8% year over year, matching forecasts. On a monthly basis, core PCE rose 0.2%, also aligning with estimates.

In its December macroeconomic projections, the Federal Reserve raised its 2025 inflation outlook, expecting both headline and core PCE inflation to average 2.5% in 2025.

Personal income increased 0.4% month over month in December, accelerating from 0.3% in November, in line with expectations.

“The increase in personal income in December primarily reflected an increase in compensation, led by private wages and salaries,” the Bureau of Economic Analysis wrote.

Personal spending spiked 0.7%, up from the previous 0.6%, beating forecasts of 0.5% and marking the strongest increase since March 2024.

The highest changes in monthly consumer spending occurred in housing and utilities, up by $29.8 billion, transportation services, up $25.9 billion, and gasoline and other energy goods, up $21.8 billion.

Market Reactions

The U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, held broadly steady minutes after the release.

Treasury yields inched marginally higher, with the 10-year yield up by 2 basis points to 4.54%.

Futures on major U.S. indices traded mostly in the green in New York premarket trading, with contracts on the S&P 500 up 0.5%, although a tad lower following the PCE release. On Thursday, the SPDR S&P 500 ETF Trust SPY closed 0.5% higher.

Sector-wise, the Technology Select Sector SPDR Fund XLK led gains, up 1%, driven by a 4.2% premarket surge in Apple Inc.

The Consumer Staples Select Sector SPDR Fund XLP was the laggard, falling 0.5%, weighed down a 14% drop in Walgreens Boots Alliance Inc. WBA.

Gold prices – tracked by the SPDR Gold Trust GLD – remained steady at record highs of $2,800 per ounce, up 0.4% for the day.

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