In this morning’s data, the PCE Deflator increased 0.4% in December slightly higher than expected and was up 2.9% on an annual basis. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve for policy decisions, also increased 0.4% in December, above expectations. The core rate grew 3.0% on an annual basis, which is two tenths higher than the previous month’s figure.
In addition, Personal Income increased 0.3% in December, as expected. Personal Spending increased 0.4% in December, higher than expected and is the same as the previous month’s revised increase. The personal savings rate as a percentage of disposable income was 3.6%, which is below previous levels.
Meanwhile, the first estimate of GDP growth for the fourth quarter 2025 was 1.4% on an annualized basis, much less than as expected and well below the GDPNow figure from the Atlanta Fed. In review of the components, investment was relatively strong while government spending was weak. With this estimate, GDP grew approximately 2.3% on an annualized basis in 2025.
Overall, the delayed reports due to the government shutdown last fall show inflation measures in December were higher than expected and the annualized core rate remains elevated, still above the Federal Reserve’s stated target. In addition, both income and spending increased in December, but spending was higher than expected and savings levels are lower than they were in previous periods. The first estimate of annualized GDP growth in the fourth quarter 2025 was much less than expected as strength in investment was offset by weak government spending, partly due to the lengthy shutdown seen in the quarter. Still, economic growth appears to have been in a decent place at the end of 2025. Considering these data points, the ability of inflation measures to lessen or dis-inflate over the coming months will be a key factor for Fed policy and the economy as we move through 2026.
In all, the yield on the 10-year US Treasury ticks slightly higher following the report and equity futures are lower as we head into the market open.
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