Headline Inflation Cools, But Food Prices Still Climbed in December

Taken as a whole, the Commerce Department’s latest reading on inflation shows a dip below a key psychological level. 

The Personal Consumption Index, as released Friday (Jan. 26) showed a gain of 0.2% in December, and was up 2.9% from a year ago. That’s below the 3% level that had been expected and down from the 3.2% rate that been in place previously. 

But within the data, we find that consumer spending was up 0.7% in the month, while personal incomes were 0.3% lower, as measured month on month, which indicates that income is not keeping pace with spending — and as PYMNTS Intelligence has documented, consumers by and large have not felt for some time that their wages have kept pace with inflation.  

Food Prices Are Higher

Food prices were up 0.1% month on month and were 1.5% higher than a year ago, the Friday release from the government detailed.

The overall cost of housing was about have a percent higher in December, measured month over month. These gains have offset some declines in prices paid in certain categories such as electronics, month on month.

The latest data is sure to give new sparks to the debate over whether the U.S. economy is indeed headed towards a soft landing, and when/whether the Fed will cut rates through the next several months.    

As has been seen with other data released this week, personal savings rates are slowing as consumers tap their savings to have the financial firepower to pay for what they need. The latest readings Friday — which tend to be most closely watched by the Federal Reserve vis a vis its policies regarding interest rates — detailed that the personal savings rate was 3.7% last month, down from 4.1% in November. 

Inflation’s taken a toll here, and the pinch has been keenly felt by middle income consumers — those making between $50,000 to $100,000 annually. Overall, and headed into the end of last year nearly eight out of 10 consumers told PYMNTS that they have depleted their savings to pay their bills. Inflation’s eroded the purchasing power of savings by more than 2% year on year, but for the middle income earners, the readily available savings in real terms, adjusted for inflation, plummeted by 18% in the last year.

Finding Other Ways to Pay 

As PYMNTS Intelligence and LendingClub found in the latest Paycheck to Paycheck report released last month, about 60% of credit cards are held by cardholders who live paycheck to paycheck, and 17% are held by paycheck-to-paycheck consumers with issues paying monthly bills. In the meantime, there are indications that consumers are looking toward other avenues to purchase the essentials, including food. 

As noted here, of the 60% of consumers who have used some type of installment payment plan through the past several months, 34% have done so to purchase groceries.