The January headline PCE rose .6% m/o/m vs the estimate of up .5% after a .2% gain in December which was revised up by one tenth. The core rate was higher by .6% m/o/m, two tenths above the forecast and December was also revised up by one tenth to a .4% increase. Versus last year headline PCE was up 5.4% while the core rate grew by 4.7%. Keep in mind that in contrast to CPI, PCE has about half the weighting in housing and about double the weight in healthcare. Also, the PCE was NOT altered like CPI was in terms of the change from a two yr comparison to one.
Energy prices rebounded by 2% m/o/m while food rose by .4% again. Goods prices continued to moderate with a 4.7% y/o/y gain vs 5.1% in December, 6.3% in November, 7.3% in October, 8% in September, 8.6% in August, etc… Service inflation in contrast continued to accelerate, rising by 5.7% y/o/y vs 5.4% in December, the highest in this cycle.
Income growth in January rose less than expected but still up .6% m/o/m while spending was up more in nominal terms but as expected in REAL terms. The savings rate rose 2 tenths m/o/m to 4.7%. Private sector wages/salaries grew by 1% m/o/m and 7.9% y/o/y (both aggregate the number of newly employed plus total wages). Spending was led by an increase in spending on both goods and services.
Bottom line, Treasury yields are moving higher in response to the higher than expected inflation stats and reminder that while the trend will still be down, it will still take time to get to some Fed comfort level. Either way, at least looking at the core PCE, we FINALLY have ZERO real interest rates. That said, governor Waller said he’s more focused on headline. I know some are still trying to figure out how many hikes the Fed has left but it’s not many and AGAIN, higher rates for a longer time frame should be the focus.
That gets to the point I need to push back on with respect to Fed president Bullard who thinks that there are no more long and variable lags to monetary policy currently and the full impact is now. Maybe so for the housing sector and growing with auto’s but not for those who have debt coming due over the course of this year and next. That is still a long and variable lag in terms of the impact. At least in the commercial real estate market, each month that passes you’ll be hearing stories of the keys being handed back to the banks as loans come due.
Headline PCE
Core PCE