US consumer prices drop for first time since 2020

Latest data shows continued progress in fight to bring inflation back down to 2 per cent

New US government data showed continued progress in the fight to bring inflation down to the Federal Reserve's 2 per cent goal. AFP

Consumer prices in the US fell for the first time since November 2020 in another sign that price pressures are easing in the wake of the Federal Reserve's aggressive interest rate increases.

The Personal Consumption Expenditures (PCE) Price Index decreased by 0.1 per cent last month, the Commerce Department reported on Friday. On an annual basis, prices rose 2.6 per cent in November following a downwardly revised 2.9 per cent climb in October.

Core PCE inflation – which excludes food and energy – rose 0.1 per cent last month and 3.2 per cent year on year.

Friday's report adds to growing optimism that inflation is steadily climbing down closer to the Fed's 2 per cent goal. The central bank raised interest rates 11 times since March 2022 to their current 5.4 per cent rate – the highest level in 22 years.

By doing so, the Fed has made borrowing more expensive but this has also resulted in the moderation of inflation that has been reported in recent months.

Much of this progress has been made without widespread layoffs, which some had predicted to be necessary for inflation to climb back down to 2 per cent.

This has raised hopes that the Fed can achieve a so-called soft landing, by which the central bank slows the economy without steering it into a recession.

The Fed last month indicated that it is done raising interest rates in the current tightening cycle, with the focus now turning to when they will begin cutting rates.

Projections released by the Fed earlier this month showed that officials expect it to cut interest rates three times next year.

Officials also estimate that PCE inflation – their preferred metric – will fall to 2.6 per cent by the end of 2024.