Key Fed inflation gauge rises 4.9% from a year ago, fastest gain since 1983

The Commerce Department reported Friday that the gauge the Federal Reserve prefers to measure inflation rose 4.9% from a year ago.

The core personal consumption expenditures price index, which excludes food and energy, was ahead of the 4.7% pace in November. The monthly gain was in line with expectations.

Personal income rose a bit less than the estimate, but the inflation numbers were still good. Consumer spending declined less than was estimated.

The Labor Department data shows that compensation costs for civilian workers increased 4% over the past year. That is the fastest pace in the history of the employment cost index.

The increase of 1% was less than the forecast.

The numbers come at a time when rampant inflation is pushing the Fed into an aggressive pace of policy tightening.

The central bank is likely to raise interest rates in March. Benchmark short-term borrowing rates have been anchored near zero since the beginning of the Covid pandemic in early 2020 and are expected to increase by five quarter-percentage-point this year.

Headline inflation rose at a 5.8% pace, tying for the fastest pace since June 1982.

Stock market futures were off their morning lows as markets viewed the data releases as positive.

Fed officials are worried about inflation pressures they had characterized through much of last year as transitory.

Wages and the possibility of a spiral where increases in pay push up prices and in turn drive inflation expectations higher is one area of concern.

The 4% employment cost index annual increase, though missing estimates and below the 1.3% gain from the previous quarter, still represented a sharp gain from the 2.5% rise from a year ago. Wages and salaries for private industry workers increased by 5%. Benefits costs went up.

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