November 2025 PCE Inflation Report Shows Persistent Inflation Above Fed's 2% Target

The November 2025 PCE inflation report, released on January 22, 2026, provides a retrospective view of U.S. inflation dynamics that has been significantly delayed due to the government shutdown affecting October and November 2025 data collection [1]. The Personal Consumption Expenditures price index serves as the Federal Reserve’s preferred inflation measure, making this data significant for understanding the central bank’s policy calculus, despite its diminished relevance for immediate monetary decisions due to the two-month reporting lag.

The data reveals that inflationary pressures remain stubbornly persistent across both goods and services categories. Goods inflation accelerated to 1.4% annually in November, up from 1.0% in October, with durable goods prices rising 1.2% compared to the prior month’s 1.0% increase [1]. Meanwhile, services inflation continued its elevated trajectory at 3.4% annually, marginally higher than October’s 3.3%, indicating that the services sector continues to serve as the primary driver of overall inflation persistence. This sectoral decomposition suggests that while goods deflation has largely run its course, services-sector inflation—often more entrenched and slower to respond to monetary policy—remains a structural challenge for policymakers.

The dual reading of 2.8% for both headline and core PCE represents a notable convergence that analysts at Oxford Economics have cautioned may actually understate true inflationary pressures [1]. The interpolation methodology used to fill gaps in the data due to the government shutdown potentially masks the magnitude of price increases that occurred during that period, with the research firm suggesting that actual inflation may have been higher and that any corrective adjustment could create drag in the second quarter of 2026. This data quality concern adds an important layer of uncertainty to the interpretation of these figures and suggests that the Fed may appropriately exercise caution in responding to what appears to be already-elevated readings.

The convergence of headline and core PCE inflation at identical 2.8% annual rates provides several important analytical signals. Historically, the gap between headline and core inflation has served as an indicator of underlying goods deflation versus persistent services pressures; when food and energy prices were elevated, core inflation typically ran below headline, but that dynamic has now reversed. The current readings suggest that goods inflation has re-emerged as a contributing factor while services inflation remains entrenched, fundamentally altering the inflation mix that policymakers must navigate.

Consumer financial health indicators present a concerning backdrop to the persistent inflation picture. The personal saving rate fell to a three-year low in November, prompting economist Michael Pearce of Oxford Economics to characterize the trend as “not sustainable indefinitely” [1]. This development creates a potentially volatile economic dynamic: households facing elevated prices are simultaneously drawing down savings to maintain consumption levels, which cannot continue indefinitely without eventually triggering a consumption slowdown that could either help cool inflation or signal emerging economic weakness.

The policy environment has added layers of complexity to the inflation outlook, with former President Trump publicly calling on Federal Reserve Chair Jerome Powell to lower interest rates [1]. This political pressure introduces an unusual dynamic into the monetary policy debate, though Fed officials have historically maintained independence from political influences. The combination of tariff-driven inflation pressures from potential trade policy changes and cooling forces in the housing market creates conflicting signals that complicate the Fed’s path forward, suggesting a prolonged period of policy caution until clearer trends emerge.

The most significant risk indicator emerging from this analysis is the sustained deviation of inflation from the Fed’s 2% target, now at nearly 1 percentage point above objective for both headline and core measures. The persistence of services inflation at 3.4% annually represents the most entrenched component and poses the greatest challenge for price stabilization, as services costs are typically more rigid and less responsive to interest rate adjustments than goods prices. Additionally, the data quality concerns flagged by Oxford Economics regarding potential underreporting through interpolation methods introduce measurement uncertainty that could lead to policy missteps if actual inflation proves materially higher than reported [1].

The three-year low in personal saving rates represents a critical inflection point for economic forecasting. While this has allowed consumption to remain resilient despite elevated inflation, the finite nature of accumulated savings suggests that a consumption adjustment may be approaching, with uncertain implications for both economic growth and inflation trajectories. Markets and policymakers should monitor consumer credit data and retail sales figures closely for early warning signs of this dynamic playing out.

The delayed release of this inflation data has effectively reduced its immediate policy relevance, creating a window for market participants to position for scenarios that may emerge from the December 2025 PCE report and subsequent data releases. The 10-year Treasury yield at 4.26% reflects market pricing of persistent inflation, and any indication that the interpolation methodology indeed masked true inflationary pressures could lead to yield increases, while evidence of moderation could support yield declines. The 95% probability currently priced for an unchanged Fed rate at the January meeting [1] suggests limited market reaction to this specific data point, but the cumulative effect of several elevated readings could shift expectations over the coming months.

The November 2025 PCE inflation report documents that consumer prices remained elevated at 2.8% year-over-year for both headline and core measures, exceeding the Federal Reserve’s 2% target by a significant margin. Monthly inflation was 0.2% for both metrics, with headline slightly above the 2.7% estimate and core in line with expectations. The report was delayed by approximately two months due to the government shutdown, reducing its immediate relevance for Fed policy decisions at the January 27-28 meeting but still confirming the persistent nature of inflationary pressures in the economy. Goods inflation accelerated to 1.4% annually while services remained elevated at 3.4%, indicating a broad-based rather than sector-specific inflation challenge.

The data arrives amid a complex macroeconomic backdrop combining potential tariff-driven inflation pressures with cooling forces in housing markets, creating conflicting signals for policymakers. Market pricing indicates near-certain expectation that rates will remain unchanged at the upcoming meeting, though the persistence of inflation above target may eventually require a more accommodative stance from the Fed if price pressures do not moderate. The combination of elevated inflation, a three-year low in saving rates, and political pressure on the central bank creates an environment of heightened uncertainty that warrants careful monitoring of subsequent data releases.