The Federal Reserve's most favored inflation indicator exceeded expectations! The U.S. core PCE price index for December rose 3% year-on-year

On Friday, data released by the U.S. Department of Commerce's Bureau of Economic Analysis (BEA) showed that the Federal Reserve's preferred PCE inflation indicator exceeded expectations: excluding the volatile food and energy prices, the U.S. core personal consumption expenditures price index (PCE) rose 0.4% in December, marking the largest increase in nearly a year; the year-on-year core PCE rose 3% in December, compared to 2.8% at the beginning of 2025. The specific data is as follows: U.S. December PCE price index year-on-year 2.9%, previous value 2.8%. U.S. December PCE price index month-on-month 0.4%, expected 0.3%, previous value 0.2%. U.S. December core PCE price index year-on-year 3%, expected 2.9%, previous value 2.8%. U.S. December core PCE price index month-on-month 0.4%, expected 0.4%, previous value 0.2%. Core PCE inflation is one of the indicators the Federal Reserve focuses on to achieve its 2% inflation target. This data has been included in the preliminary report of the fourth quarter GDP released on Friday. The closely watched SuperCore PCE rose 0.3% month-on-month, and the SuperCore PCE year-on-year rose 3.3%, remaining roughly flat compared to the same period last year. Service prices continued to dominate price increases, but commodity prices also accelerated in December. Although the consumer price index (CPI) report released by the U.S. Bureau of Labor Statistics last week showed a moderate rise in January inflation, inflation in the service sector still exhibited some stickiness. Economists also pointed out that legal service prices saw a significant increase in January. Barclays stated: “This category (not separately reported by the Bureau of Labor Statistics but can be inferred) rose 12% month-on-month in January, which alone would contribute about 10 basis points to core PCE inflation. However, this is usually a highly volatile category with limited forward-looking reference value.” Economists estimate that the month-on-month core PCE inflation in January may rise by up to 0.4%, corresponding to a year-on-year increase of about 3.1%. These forecasts may change after the January producer price index (PPI) report is released next Friday. The January PCE inflation data will be released on March 13. Related reports were previously delayed due to the U.S. government shutdown last year. Analysis indicates that underlying inflation in the U.S. rose more than expected in December, and signs suggest it may accelerate further in January, reinforcing market expectations that the Federal Reserve will not cut interest rates before June. Personal Income and Consumption Expenditures Price increases accompanied by increases in income and spending: U.S. December personal consumption expenditures (PCE) rose 0.4% month-on-month, expected 0.4%, the same as November. December real personal consumption expenditures (PCE) rose 0.1% month-on-month, compared to a previous value of 0.3%. Consumer spending accounts for more than two-thirds of U.S. economic activity, and the latest data shows that as we enter the first quarter, consumer spending is showing a moderate growth trend In December, personal income in the United States increased by 0.3% month-on-month, expected to rise by 0.4%, with a previous value of 0.3%. The financial blog Zerohedge states that the growth rate of spending continues to exceed that of income, although the former's growth rate is slowing down. Wage growth is also slowing, especially for government employees. To cope with this, the savings rate is significantly declining, reaching a new low since October 2022. Market Reaction The GDP data for the fourth quarter of 2025 was released at the same time as the U.S. PCE data, showing a growth rate below expectations. After the release of U.S. PCE and other data, U.S. stock futures fell slightly, with Nasdaq futures down 0.33% for the day, S&P 500 futures down 0.24%, and Dow futures down 0.18%. There was little change in U.S. short-term interest rate futures. Traders still bet that the Federal Reserve will cut interest rates in June