Inflation, Once Again, Hotter Than Expected

We have gotten used to this headline but that doesn’t make it any better. The Fed’s preferred inflation gauge came in hotter than expected, according to the latest data from the Bureau of Economic Analysis…(BEA)

  • M-O-M: The Personal Consumption Expenditure Index was up 0.6%, economists had projected a much smaller increase of 0.2%.
  • Y-O-Y: The PCE index was up 6.1% year-over-year, economists had projected a smaller increase to 5.9% and the strongest gain since February 1982.

NOTE: Core PCE was reported at 5.2%.

Personal Income was basically unchanged month-over-month at 21.04T but was down 1.9% compared to the same time last year thanks to a reduction in government transfers…

  • Wages and salaries were up slightly month-over-month to 10.8T(+0.4%), this up 12.6% from the same time one year ago.
  • Government transfers fell 1.3% month-over-month to 3.83T, this is down 33% from one year ago.

Spending increased along with prices and income…

  • M-0-M: Personal Consumption Expenditure was up 2.0% in January to $16.6 trillion.
  • Y-O-Y: Spending was up 12.1% when compared to January 2021.

Paul Ashworth, chief U.S. economist at Capital Economics, wrote that that the ongoing economic growth along with inflation means rate hikes are coming…

  • “Overall, the real economy appears to be in stronger health than we feared, suggesting that the Fed will push on with its planned rate hikes starting in March, although the Ukraine conflict makes a 50 [basis point] hike less likely,”