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Key Takeaways
- Consumer prices rose 2.8% over the year in November, remaining well above the Federal Reserve’s goal of a 2% annual rate.
- The personal savings rate hit a three-year low in November, as inflation rose slightly faster than after-tax income.
- The report was delayed by a month by the government shutdown in October an November, and economists cautioned the shutdown may have skewed the data.
Keeping up with the bills got harder for many households in November and October, as income failed to keep up with price increases according to a new government report.
Prices as measured by the Personal Consumption Expenditures price index rose 2.8% for the year in November, up from a 2.7% annual increase in October, the Bureau of Economic Analysis said Thursday. “Core” PCE, excluding the volatile prices for food and energy, rose by the same amount both months, equal to September’s levels.
Meanwhile, inflation-adjusted disposable income fell 0.1% in October and then increased 0.1% in November. The savings rate fell to 3.5% in November from 4% in September, hitting its lowest level since 2022.
The report showed a continuation of trends from earlier in the year, with inflation running hotter than the Federal Reserve’s target of a 2% annual rate and household income struggling to keep up with costs. The report covered a period when the federal government was shut down, which put extra financial stress on people with government jobs and may have distorted survey results.
“Consumers are still spending, but they dipped heavily into savings during the shutdown,” Heather Long, economist at Navy Federal Credit Union, wrote in a commentary. “Incomes need to continue to grow in 2026 to fuel a healthy economy. It’s likely the data was skewed by the shutdown, but this is worth watching closely.”
The savings rate has fallen every month since April, when President Donald Trump announced sweeping tariffs on most countries in the world. The “Liberation Day” tariffs were ultimately watered down before going into effect, but they and other Trump tariffs have had a significant effect on the economy and household budgets, creating uncertainty and pushing up prices.
What This Means For The Economy
The report adds to recent signs that household budgets are under stress, especially for middle and lower-income households. If people are forced to tighten their belts, it would undermine consumer spending, which is the backbone of the economy.
The report was delayed by about a month, as the bureau and other government statistical agencies are playing catch-up after the government shutdown in October and November. For that reason, the elevated level of core inflation shown in the report could have less of an influence on the Fed’s interest rate decision than it normally would.
Core PCE prices are especially important because the Fed uses that measure as its benchmark to determine if inflation is on target. Economists often look at core inflation to judge the trajectory of inflation because prices for food and energy often rise for reasons that have little to do with economic trends, such as the weather.
The central bank is widely expected to hold interest rates steady at its next policy meeting next week. Fed officials have been debating whether to keep the key fed funds rate higher for longer to fight inflation, or to lower it to help boost the job market, which has been slowing in recent months. The fed funds rate influences borrowing costs on all kinds of loans, so keeping it higher can discourage borrowing and spending and push down inflation.
