The Fed’s preferred gauge of underlying price growth slipped below 3% in December, data out Friday showed.

Core PCE prices rose 2.9% last month from a year earlier, the BEA said. It was the slowest pace since March of 2021, before inflation took off.

On a MoM basis, core prices rose 0.2% (0.172% unrounded), in line with estimates.

The headline PCE print for December was 2.6% YoY. Measured on a six-month annualized basis, core price growth was 1.9% last month. So, below target.

Generally speaking, the data underscored the contention that the disinflation process is proceeding and that the Fed will be able to cut rates in 2024, albeit perhaps not as much as markets expect barring a sudden growth deceleration or a rapid deterioration in the labor market (neither of which seems especially likely at this juncture).

Friday’s data also showed personal spending, both nominal and real, easily topped estimates for December.

The 0.7% increase in spending was the briskest since September. It also matched the highest estimate from 62 economists.

Broadly, the figures appeared to convey the same message as Thursday’s advance read on Q4 GDP: Inflation is returning to target and consumers are still ready, willing and able to spend, grouse as they (righteously) will about higher prices.

I should note that the MoM core services-ex shelter print (i.e., the “supercore” measure the Fed’s watching) felt a little warm, but that wasn’t likely to elicit any fireworks. On a YoY basis, that metric is warmer than the “regular” core price index, but it too is now at levels last seen almost three years ago.

With so much event risk looming next week, the update probably won’t move (m)any needles. “We don’t expect December’s [PCE] data will materially shift March cut odds ahead of the weekend, and instead we’ll look for next week’s supply announcements, FOMC decision and payrolls print to quickly take the market’s focus,” BMO’s Ben Jeffery said.