Core PCE 0% In December and +1.7% YOY, In Fed Comfort Zone. Spending -1%, Sixth Straigh Drop.

Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were -0.5% in in December and +0.6% year-over-year through December. Excluding volatile oil and food costs from the readings, “Core” PCE price index for December was 0% (making it 0% for all of 4Q2008) and +1.7% YOY through December.

The steep -2.2% fall in 4Q2008 (-0.6% Oct, -1.1% Nov, -0.5% Dec) reflects not only dropping oil prices but also suggests a deflationary threat. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these items, and the Fed’s zone for reasonable inflation is 1-2% per year. At +1.7%, the Core number is right in line within their comfort zone.

Consumer spending for December decreased $102.4 billion or -1%, which is the sixth straight monthly drop.