Fed’s Preferred Inflation Gauge Hotter Than Expected

Not a good morning for mortgage rates as the Fed’s preferred inflation gauge came in hotter than expected in January, according to the Bureau of Economic Analysis.

  • Y-O-Y: The personal consumption expenditure price index was expected to fall under 5% but instead increased to 5.4%, a 0.1% increase from last month.
  • M-O-M: The price index was expected to increase 0.3% but instead jumped 0.6% from December, up from the 0.2% increase in December and the largest increase since October.

The Core, The Core, The Core. The core PCE index followed a similar pattern as the topline number. The annualized climbed above December’s print to 4.7% thanks to a 0.6% monthly increase.

What Inflation? Despite higher prices, consumers kept spending that cheddar with a bigger-than-expected increase in January. Personal spending jumped 1.8%, way up from last month’s 0.1% dip and the biggest increase since last January.

  • Income Did Not Keep Up. Income was up, but not as much as spending. Personal income rose 0.6% in December, up from 0.3% in December and the largest increase since October.

BOTTOM LINE: Nine days ago I tweeted “Huge jobs report and big retail sales beat. Does the fed have to raise rates by 50 bips next meeting?” I think we have the answer to that question now. Yes.