According to Friday’s Commerce Department report, inflation was measured by a gauge that the Federal Reserve uses to determine its level rose 4.9% over a previous year, but the greatest gain is from September 1983.
However, the core price index for personal consumption expenses, which includes food but does not include energy, was slightly lower than the 4.8% Dow Jones estimate. This pace is also higher than November’s 4.7%. Expectations were met by 0.5% monthly growth.
Personal income rose 0.3% per month in addition to the inflation figures, slightly lower than the 0.4% estimate. The 0.7% estimate was lower than the 0.6%. Consumer spending fell 0.6%.
Fed officials closely monitor a separate Labor Department data source that showed that civilian worker’s total compensation cost increased by 4% in the last 12 months. It is the fastest rate ever recorded for the employment costs index (a set of data that dates back to 2002).
The seasonally adjusted quarterly increase of 1.1% was lower than forecasted, which helps to calm fears about an inflationary spiral in wage prices.
As rampant inflation pushes the Fed to an aggressive pace in tightening policy, these numbers speak volumes.
Central bank officials stated earlier this week that they may raise interest rates in March. The market pricing points to five quarter percentage points increases in benchmark short-term borrowing rate rates this year. These rates have been nearly zero since January. the Covid pandemicEarly 2020
The PCE index measured headline inflation at 5.8%. This is the fastest rate since June 1982.
The markets viewed data releases positively, and stock market futures were well above their morning lows.
Fed officials are concerned about the inflation pressures, which they had previously described as “transitory” during much of last year. Although factors such as supply chain bottlenecks, strong demand for services over goods have all contributed to price rises, inflation is stronger and more persistent than the policymakers thought.
Wages are a particular concern. There is the potential for a spiral in which increases in wages push up prices, driving inflation expectations higher.
According to Ian Shepherdson of Pantheon Macroeconomics, “One-quarter’s data do not prove anything, but labor participation is creeping higher and excess demand measures flattening over the past months, it seems reasonable to believe that wage growth won’t re-accelerate drastically.” This report relieves immediate pressure on the [Federal Open Market Committee]To act quickly; Wall Street should hear the relief sighs from Fed Towers.
Although the annual increase in the employment cost index was not based on quarter estimates and fell below 1.3%, it still represents a significant improvement over the 2.5% rise a year earlier. The compensation for workers in the private sector soared 4.4%. This included an increase of wages and salaries by 5%. The cost of benefits rose by 2.9%
The fastest growing occupations in terms of compensation were those that are service-oriented, where there was a 6.1% increase between 2021 and 2021. The rate of compensation for nursing and residential care rose 5.7%.
After a gain of 0.4% in November, consumers’ spending fell 0.6% despite the increase in wages.
However, the spending fell despite an increase of 6.9% in gross domestic product for the fourth quarter. This closed out a year when the economy was growing at the fastest rate since 1984.