Savings Rate Tumbles To 4 Year Lows As Fed's Favorite Inflation Indicator Comes In Hot

The core Personal Consumption Expenditures (PCE), the Federal Reserve's preferred inflation gauge, increased by 0.4% in December, exceeding expectations. This rise pushed the year-over-year core inflation rate to 3.0%, the highest since April 2025. Headline PCE also rose 0.4% monthly, with the yearly rate reaching 2.9%, the highest since March 2024. The SuperCore PCE also rose, though its year-over-year rate remained unchanged at 3.3%. Service costs primarily drove the price gains, but good costs have also accelerated. Despite oil price concerns, government energy cost measures have decoupled from actual prices. Rising costs were accompanied by increased income and consumer spending. Despite spending growth slowing, it still outpaces income increases. Wage growth is slowing, particularly for government employees. The falling savings rate reflects the affordability challenges. The author anticipates President Trump addressing affordability in the State of the Union address.