(Kitco News) – Cooling inflation pressures in the last 12 months are not providing gold prices with much bullish momentum as the precious metal continues to consolidate above $2,000 an ounce.
Friday, The U.S. Department of Commerce said its core Personal Consumption Expenditures price index increased 0.2% last month, compared to November’s increase of 0.1%. The data showed inflation rising in line with expectations.
However, looking at the entire year, the report said that core PCE rose 2.9% as of December. According to consensus forecasts, economists were looking for an increase of 3.0%. Inflation is down solidly from November’s 3.2% rise. Annual inflation has dropped to its lowest level since February 2021.
Some economists have said that inflation falling below 3% gives the Federal Reserve room to cut rates; however, others have said that with the U.S. economy showing resilient strength, the inflation threat has not abated.
The CME FedWatch Tool shows that markets continue to see a 50/50 chance of a rate cut in March.
The gold market is not seeing much reaction to the latest PCE numbers. February gold futures last traded at $2,019.70 an ounce, nearly unchanged on the day.
Andrew Hunter, deputy chief U.S. economist at Capital Economics, said that the disinflation trend gives the Federal Reserve more than enough room to cut rates by March.
“The December income and spending data confirm that core PCE inflation has been running at an annualized pace in line with the Fed’s 2% target for seven months now. This reiterates the message that there isn’t really any “last mile” of disinflation still to achieve and that, even with real economic growth still resilient, there is plenty of scope for the Fed to start cutting interest rates soon,” Hunter said in a note.
“We still suspect that the economy’s strength last month may have partly reflected the unseasonably mild weather, suggesting the January employment and activity data could be much weaker. As a result, for now, we are still expecting consumption and GDP growth to slow fairly sharply in the first quarter, Hunter added.
The data shows that consumption continues to support economic activity but the trend appears unstable as consumers are living beyond their means. The report said that personal income rose 0.3% last month, rising in line with expectations.
At the same time, personal consumption increased 0.7%, up from November’s revised increase of 0.4%. The data significantly beat expectations as consensus forecasts looked for a 0.5% increase.
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