PCE Index Probably Popped Again in November

Federal Reserve policymakers are likely to finish a year that has been colored by surprisingly high inflation with yet more bad news: Their preferred price measure could touch its highest level since 1982 when the latest reading is published on Thursday morning.

The Personal Consumption Expenditures price index, which is the indicator that the Fed officially targets when it aims for 2 percent annual inflation on average over time, is expected to have climbed by 5.7 percent in November from a year earlier, economists surveyed by Bloomberg estimate. That would be the fastest pace of increase in nearly 40 years.

Part of the jump will be caused by gasoline prices, which were up sharply in November, and have moderated this month. But a so-called “core” index that excludes food and fuel prices is also expected to increase sharply, to 4.5 percent.

Rapidly rising prices are lasting longer than policymakers had hoped, and they have become broader in recent months. Earlier this year, big price increases were largely limited to goods that were in short supply as demand surged and as overtaxed shipping lines struggled to keep up. More recently, they have spread into categories like rent — which can be more long-lasting.

Fed officials are tasked with keeping inflation moderate and helping the country achieve full employment, and they have grown increasingly worried about the surge in prices. This month they pivoted on policy, speeding up plans to cut back on economic support and preparing to raise interest rates early next year if that proves necessary. Higher interest rates can weaken demand for everything from homes to cars, helping to slow down the economy and restrain inflation.

The big question for officials at the central bank — and in the Biden administration — is what will come next. With the Omicron variant of the coronavirus surging around the world, it is unlikely that tangled supply chains will get back to normal quickly. At the same time, rising housing costs could keep inflation high even as some of the most painful trends of 2021, including a surge in used-car prices tied to a computer chip shortage, moderate.

Fed officials do expect inflation to ease to 2.6 percent by the end of next year, their most recent economic forecasts showed, but that would remain substantially above their 2 percent goal. None of the Fed’s 18 top officials expect inflation to drop below 2 percent next year. High inflation also is sapping consumer confidence as people face down rising costs, even at a time when job openings far exceed available workers and wages are rising.

“It’s a devastating thing for people who are working class and middle-class,” President Biden said at the White House on Tuesday, adding: “It really hurts.”

The administration is trying to pull what levers it can — increasing the supply of oil and gas and trying to keep ports open longer in an effort to clear shipping backlogs.

But costs also are increasing because households have saved a lot after repeated government stimulus checks and months locked at home. People are spending voraciously, giving companies the power to raise prices without losing customers.

It is the Fed’s job to lean against those demand-tied inflation pressures.

“While the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic, price increases have now spread to a broader range of goods and services,” Jerome H. Powell, the Fed chair, said at a news conference last week. He suggested that if prices remain uncomfortably high, the Fed will do more to keep them under control.

“We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation,” Mr. Powell said. “We are committed to our price stability goal.”