PCE inflation stats along with income and spending, yields fall in response

The April PCE inflation data was as expected and typically is since it comes weeks after CPI and PPI. The headline gain was .3% and the core by .2% m/o/m. Versus last year the gains were 2.7% and 2.8% respectively, no change from March. Again, unlike in CPI, healthcare is the biggest PCE component and its reliance on Medicare and Medicaid reimbursement rates is why it trends under CPI along with housing being about half the CPI allocation. For these reasons I believe CPI is a better inflation stat.

An energy price gain of 1.2% m/o/m modestly offset by a .2% m/o/m drop in food prices helped to drive the headline gain. On a y/o/y basis, energy prices are up 3% and food by 1.3%. Elsewhere, service price inflation continues to lead the way, higher by 3.9% y/o/y while goods prices continue to flat line around zero which was the pre Covid trend. Service inflation was NEVER transitory while goods price inflation was. That said, in the coming few years I expect goods price inflation to average something closer to 1-2% which doesn’t sound like much but it’s well above zero.