Inflation stats, income and spending too along with the ECI

The December PCE headline inflation figure of up .3% m/o/m was as expected and the same is said for the core rate gain of .2%. It’s typically the case that the results are about as forecasted for PCE as it comes weeks after the CPI and PPI numbers. The y/o/y headline gain was 2.6% vs 2.4% in the month prior while the core rate held at 2.8%. As stated here many times, these figures tend to trend around 50 bps below CPI because of the differing weightings in health care and housing with the former calculated via mostly Medicare and Medicaid reimbursement rates in PCE vs out of pocket healthcare expenses in CPI. Thus, the concept of being ‘restrictive’ in terms of monetary policy very much depends on what inflation stat one is looking at and we know the Fed prefers the lower reading of PCE.

The 2.7% m/o/m gain in energy prices goosed the headline figure while food prices were up just .2% but many food commodity prices have been ticking higher of late, particularly corn and coffee hit a fresh all time high. The CRB food stuff index is just below the highest level since October 2023. Versus last year, goods prices saw no change which is back to the pre Covid trend with the question now whether it stays down. Services inflation ex energy and food rose 2.8% y/o/y as services inflation is NEVER transitory.

Personal income rose .4% m/o/m as anticipated while spending was better than expected with a .7% gain, two tenths above the estimate and November was revised up by two tenths to a .6% gain. As seen in yesterday’s Q4 GDP figure, we know consumer spending led the growth. Combine the two and the savings rate fell to 3.8% from 4.1% and that is the lowest since December 2022 and August 2008 not including the Covid impact. One hand, lower income consumers don’t have much savings while higher income earners do but can lower their savings rate via the benefits they have owning stocks and their own homes.