Washington — Annual U.S. inflation continued its downward trajectory, slipping below 3%, and easing concerns over mounting price pressures. The latest data from the Commerce Department’s Bureau of Economic Analysis indicates a potential interest-rate cut in March, in line with prevailing market expectations.

The Personal Consumption Expenditures (PCE) price index, a key metric for measuring inflation, declined by 0.1% in November, following a flat performance in October. Over the 12 months ending November, the PCE price index increased by 2.6%, marking a decrease from the 2.9% rise reported in October. Notably, October marked the first time since March 2021 that the annual PCE price index fell below the 3% threshold.

Excluding the volatile food and energy components, the core PCE price index rose by 0.1% in November, matching the gain observed in December. On a year-on-year basis, the core PCE price index increased by 3.2% in November, showing the smallest rise since April 2021, down from the 3.4% rise in October.

Economists, who had anticipated a higher annual PCE price index of 2.8%, and an increase in annual core PCE inflation to 3.3%, are now reassessing their projections. Monthly inflation readings of 0.2% on a sustained basis are considered necessary to bring inflation back to the Federal Reserve’s 2% target.

Financial markets are currently reflecting a 72% likelihood of a rate cut at the Fed’s upcoming March 19-20 policy meeting, according to CME Group’s FedWatch Tool. This follows the Federal Reserve’s recent decision to maintain rates, coupled with indications that the historic two-year monetary policy tightening has concluded, paving the way for lower borrowing costs in 2024. Since March 2022, the Fed has raised its policy rate by 525 basis points to the current range of 5.25%-5.50%.

With inflation showing signs of cooling, households are enjoying increased disposable income. Consumer spending, a critical driver of the U.S. economy, saw a 0.2% uptick last month. October’s spending data was revised to show a 0.1% increase instead of the previously reported 0.2%. While economists had initially predicted a 0.3% gain in spending, the revised data suggests that consumers are still contributing to economic growth.

This latest report complements other positive economic indicators this week, such as the Commerce Department’s revelation that single-family housing starts and building permits reached one-and-a-half year highs in November. Economists have responded by revising their GDP growth estimates for this quarter, with projections as high as a 2.7% annualized rate. This comes after the economy expanded at a robust 4.9% pace in the third quarter, indicating a potential rebound in economic activity after a tentative start to the fourth quarter.