The December Personal Income and Outlays report showed that headline personal consumption expenditures inflation rose to 2.9% year over year, above market expectations and the previous month’s reading of 2.8%. Core PCE inflation rose to 3.0% year over year, above expectations for 2.9% and up from November’s reading of 2.8%. While the inflation rate for food ticked up mildly to 2.1% in December from 2.0% in November, energy prices saw a broad improvement over the month. Energy goods and services inflation fell to 2.2% year over year, down from 4.4% in November.
The ABA Office of the Chief Economist believes that this month’s report shows that inflation is more persistent than previously thought, posing several challenges for the banking industry. Higher price growth will pressure margins and weaken overall profitability for both financial services and their clients, as rising costs and macroeconomic uncertainty erode financial performance. Although some relief may come from expected rate cuts, inflation-driven headwinds — including a softening labor market and slower economic growth — may negatively affect credit performance and consumer sentiment.
