One of the Fed’s favorite charts came out this morning. The personal consumption expenditures index was posted by the BEA. The Fed likes to tease out the food and energy components because they can be more volatile. They then call this the core PCE index. I think it’s just a way they can cheat the inflation numbers but take a look.
On a year-over-year basis we’ve hit 3.4%! Now the PCE is supposed to represent the
total value of personal consumption expenditures in a given month and is made
up of goods (like food), durable goods (think cars, electronics, appliances,
furniture), non-durable goods (make-up, gasoline, clothing), and services. It also takes into account data acquired
through business surveys which the Fed believes to be more reliable than
consumer surveys (which are used by the CPI).
This is why the Fed favors it so much.
Now we aren’t in uncharted waters, it’s just been 30 years since we’ve had a reading this high.
Will this accelerate the Fed’s plans to raise interest
rates? So far, the S&P500 says
no. It’s up this morning by more than a
quarter percent. Even the Nasdaq (QQQ),
which would be much more prone to a rise in interest rates, is holding steady. It seems the Fed’s tour of speakers was
successful. We’ll see how long it lasts.
One more chart before I leave you to your
weekend.
Wage rates are continuing their month-over-month
increase. This will continue to put
upward pressure on the CPI and PCE data as consumers will have more money in
the pockets to spend. I feel we are
still at a slow boil stage on the inflation front. It reminds me of the Ernest Hemingway quote
from The Sun Also Rises, “How did you go bankrupt? Two ways, gradually, then suddenly.” How did we get inflation? Transitory, then perpetually.
Next week we’ve got some housing data, the ISM manufacturing
survey, and unemployment data.
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