Inflation stats, along with spending, income and savings rate

The May PCE inflation stats were as expected, as they typically are since they come weeks after the CPI and PPI are released. The headline gain was flat m/o/m with a core rate up by one tenth. Versus last year, both were higher by 2.6% vs 2.7% and 2.8% headline and core respectively in April. The drop of .1% y/o/y in goods prices kept the lid on overall inflation as service prices grew by 3.9% y/o/y. Versus April, goods prices fell .4% m/o/m while service prices were up by .2%.

Bottom line, from here I expect a bottoming and eventual rise in goods prices, in part due to the ripple effect of spiking transportation costs but on the other, further moderation in service inflation because of the slowdown in rental growth. Net, net, I do not believe that we’re magically going back to 2% inflation and staying there. Inflation volatility is here to stay in the coming years.