What the Fed’s Favorite Inflation Gauge Could Reveal on Thursday

We’re finally about to learn how much consumer prices rose back in the fall, according to the Federal Reserve’s favorite measure of inflation.

A report Thursday from the Bureau of Economic Analysis will likely show core consumer prices excluding food and energy, as measured by the Personal Consumption Expenditures price index, rose 2.8% over the 12 months through November, according to a consensus estimate cited by Wells Fargo Securities.

That would be identical to the 2.8% annual inflation rate reported in September, the most recent PCE inflation report, and still well above the 2% annual rate that officials at the Federal Reserve aim for as a benchmark for acceptable inflation.

Fed officials look to core PCE as their north star for judging inflation when setting monetary policy, and their next meeting is January 27-28. However, Thursday’s report is likely to carry less weight than usual as officials decide whether to adjust the Fed’s key interest rate. The data being released for both October and November has been seriously delayed by last year’s government shutdown. The BEA would normally release December data at this time in January.

“Given that recent inflation reports have been significantly impacted by data collection issues due to the federal government shutdown during October and the first half of November, Fed officials are likely to want to see several more months of data in order to get a clearer understanding of the underlying trends,” Brett Ryan, senior U.S. economist at Deutsche Bank, wrote in a commentary.

Inflation has run higher than the Fed’s goal since 2021, and while it has fallen sharply from its recent peak in 2022, it has resisted the Fed’s attempts to wrestle it all the way down to 2%.

Some Fed officials have worried that tariffs are pushing inflation higher as merchants pass along the costs of President Donald Trump’s import taxes to consumers. At the same time, a housing market slowdown has put a lid on rent increases, reducing a major component of inflation and preventing it from surging.

The Fed fights inflation by raising its influential fed funds rate, which affects borrowing costs on all kinds of loans. The Fed raised rates starting in 2022 and kept them at a higher-than-usual level for years. However, Fed officials have lowered the rate at each of the policy committee’s last three meetings to boost the economy and help the faltering job market, despite fears that inflation could flare up again.

Amid those cross-currents, Fed officials have been keeping a close eye on inflation data. With PCE information delayed, central bankers may have to pay more attention to the other widely cited inflation measure, the Consumer Price Index. November’s CPI showed inflation slowing down sharply that month, but was clouded by concerns that the data collection was distorted by the shutdown.