Core PCE inflation, a key Fed inflation measure, rose 4.4% from a year ago, its smallest annual increase since October 2021.
Consumers spent less in December even as an inflation measure considered key by the Federal Reserve showed the pace of price increases easing, the Commerce Department reported Friday.
However, the data also shows that consumer spending, which drives more than two-thirds of all U.S. economic activity, is waning. Adjusted for inflation, real consumer spending declined 0.3%. The Fed watches core PCE closely as the measure takes into accounts changing consumer behavior, such as substituting lower price goods for higher-priced items, and strips out volatile food and energy prices. Officially, the Fed says that it watches the headline number. But officials have said repeatedly that core PCE usually provides a better long-term indicator on where inflation is headed because it strips out prices that can be volatile over shorter time periods.
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