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Key Takeaways

• Inflation as measured by Personal Consumption Expenditures likely accelerated in November, mirroring the trend of a different inflation measure, the Consumer Price Index, released earlier in the month.
  

• Stubborn inflation could pressure policymakers at the Fed to keep interest rates higher for longer.
  

• Although some details of the report, such as the monthly inflation rate, may prove more encouraging, some economists see growing risks of high inflation reigniting.
  

Not long ago, the Federal Reserve's favorite measure of inflation looked tantalizingly close to the central bank's goal of a 2% annual rate. But in November, it likely headed in the wrong direction.

A report from the Bureau of Economic Analysis due Friday is likely to show that the cost of living, as measured by Personal Consumption Expenditures (PCE), rose 2.5% over the year in November, up from a 2.3% annual increase in October, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.

The trend would mirror the uptick in inflation seen in a different measure, the Consumer Price Index, released earlier this month. Officials at the Federal Reserve pay closer attention to PCE when setting the nation's monetary policy. So Friday's report could have a bigger impact on the trajectory of the central bank's key interest rate and, hence, borrowing costs on all kinds of loans down the road.

Core inflation, which excludes volatile prices for food and energy, likely rose 2.9% over the year, up from 2.8% in October and hitting its highest since April. Policymakers pay closer attention to core readings because food and gas prices can fluctuate for reasons that have little to do with broader inflation trends.

Has The Federal Reserve's Progress on Inflation Stalled?

Inflation has fallen for most of the year, but progress has stalled in recent months. Rising inflation readings could pressure officials at the Federal Reserve to keep interest rates higher for longer, which would also keep borrowing costs on credit cards, auto loans, and other credit higher for longer.

The Fed had kept its interest rate at a two-decade high for more than a year to push up borrowing costs, discourage spending, and fight inflation. Fed officials cut the rate in September and November after a string of good inflation reports and are expected to make one more cut next week.

However, newly stubborn inflation could cause rate cuts to be few and far between next year.

"With a strong economy, diminished downside risks to the labor market, and evidence that inflation is stickier than anticipated, the Fed will not be in a rush to get to a highly uncertain neutral level," wrote Deutsche Bank analysts Monday.

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