What To Expect From Friday's Report on Inflation

Key Takeaways

• Inflation as measured by Personal Consumption Expenditures is expected to have ticked up in December, according to a widely watched report.

• According to forecasts, PCE prices likely rose 2.8% over 12 months, the same annual increase as in November.

• One key inflation gauge in this report has exceeded the Federal Reserve’s 2% annual target since 2021.

The Fed’s inflation benchmark likely worsened, not improved, over 2025.

A report from the Bureau of Economic Analysis on Friday will likely show consumer prices as measured by Personal Consumption Expenditures rose 2.8% over 12 months through December, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. “Core” PCE, which excludes volatile food and energy prices, is forecast to rise 3.0%, up from 2.8% in November.

That would put both measures slightly higher than they were in January 2025. The expected rise in core PCE inflation could be especially notable because that’s the yardstick the Federal Reserve uses to gauge its 2% annual inflation target.

If the report matches expectations, it could throw some cold water on the optimism that arose in financial markets last week when another inflation measure, the Consumer Price Index, showed a promising slowdown in January.

What This Means for the Economy

Stubbornly high inflation continues to plague the economy, hurting household budgets and keeping interest rates higher than they otherwise would be.

What’s more, some forecasters expect the annual PCE measure to continue edging up as companies pass the cost of tariffs along to consumers. Economists at Goldman Sachs, for instance, expect core PCE to rise to 3.05%, which would be the highest since March 2024. (PCE reports are being released a month later than usual because of last year’s government shutdown, and the January PCE report will be published in March.)

Related Education

Personal Consumption Expenditures (PCE): What It Is and Measurement

Inflation: What It Is and How to Control Inflation Rates

Officials at the Fed will look at upcoming inflation data, especially PCE, when deciding whether to cut borrowing costs to help boost the job market or keep them higher for longer to wrestle inflation down to the 2% target.

Important

Financial markets currently expect the Fed to cut its key fed funds rate by a quarter-point in June, according to the CME Group’s FedWatch tool.

“With inflation well above target for going on five years in a row, policymakers will need more clarity on inflation trends before cutting rates further, especially given that some of the downside risks to the labor market seem to be receding,” economists at Deutsche Bank led by Justin Weidner wrote in a commentary. “These data strengthen our view that the Fed will not be able to cut again until later this year.”

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