The PCE inflation stats for September were as expected with the m/o/m gains of .3% and .5% for headline and core. The y/o/y gains were 6.2% and 5.1% for each. As stated many times, PCE trails below CPI because of the different contributions from housing and medical care and also how the latter is calculated for each metric. Goods prices continue to decelerate, rising by a still robust 8.1% y/o/y but down from 8.6% in August, 9.6% in July and 10.6% in June. Services inflation in contrast rose by 5.3% y/o/y vs 5% in August, 4.7% in July and 5.1% in June.
As for what this means for Fed policy, they want the fed funds rate at least where the core PCE is and once they get to 4.25-5% by the end of the year they will be close, especially if core PCE moderates from here in coming months.
September income was a touch above expected when we include the upward revision for August. Personal spending was above the estimate, nominally, and could lead to a tweak up in Q3 GDP forecasts at the next revision. The savings rate was 3.1% from 3.4% in August and that is one tenth from matching the lowest since April 2008 which is worrisome considering the cost of living challenges many are experiencing.
Savings Rate

The Employment Cost Index for Q3 rose 1.2% q/o/q as expected and by 5% y/o/y. Most importantly, private sector wages/salaries were up by 1.2% q/o/q and 5.2% y/o/y and total comp including benefits were up by 1.1% q/o/q and 5.2% y/o/y. That y/o/y figure is about double the 20 yr average leading into covid.
Bottom line to all of today’s data, there is nothing we don’t already know as CPI came out weeks ago and we know wage growth is trending at around 5%. US Treasuries are weaker today following the selloff in Europe where yields are spiking with 10 yr yields up about 20 bps in German, France and Italy. The selling accelerated after Germany said October CPI was up 11.6% y/o/y vs the estimate of up 10.9%. The m/o/m gain was 1.1%, double the estimate. The German 10 yr inflation breakeven is up 6 bps to 2.38% in response, the highest in a month.
Private Sector ECI y/o/y
