dollar fed inflation

Incomes Flatline, Spending Barely Grows, PCE Manages Not To Be Catastrophe

Well, this could have been better.

Get ready, this is”the big one” (“I’m comin’ to join you Elizabeth!“).

Or at least it’s “the big one” until the next “big one” (NFP) on Friday.

The core PCE deflator (not-so-affectionately known as the Fed’s preferred inflation gauge) is comin’ in hot. Or, if recent history is any indication, it’s comin’ in cold. Here are the estimates and priors:

  • PCE Deflator MoM, est. 0.0%, prior -0.1%
  • PCE Deflator YoY, est. 1.3%, prior 1.4%
  • PCE Core MoM, est. 0.1%, prior 0.1%
  • PCE Core YoY, est. 1.4%, prior 1.4%

We’re still waiting for signs that inflation will ultimately respond to tightening resource utilization and really, we’re just waiting for any sign whatsoever that inflation is going show up somewhere other than financial asset prices.

Speaking of financial asset price inflation, all of this has to be viewed in the context of the extent to which Fed tightening and balance sheet normalization is negative for risk. So again, it’s the same perverse dynamic. The incoming data needs to be just bad enough to keep the Fed at bay, and thereby preserve this growing disconnect:


Additionally, note that this comes as the dollar is more “beleaguered” than Jeff Sessions after a Trump Twitter tirade, having just come off its fifth straight monthly loss, the worst streak since 2011:


Going in, BofAML reckoned the June print would be 0.1%, which would leave the y/y rate unchanged at 1.4%. Barclays concurred. Here’s Deutsche:

Of greater importance is the core PCE deflator, which is the Fed’s preferred inflation metric. Our forecast implies that the year-over-year growth rate of the series remains at 1.4%. At minimum, the three- and sixmonth trends in core PCE inflation will need to accelerate for the Fed to raise rates again by yearend.

The numbers are out and predictably, it’s lackluster, if not horrible. But consumer spending lost momentum in June as incomes flatlined.

  • U.S. June Personal Income Unchanged; Est. 0.4%


  • Personal consumption rose 0.1%; est. 0.1%


  • Real personal spending was unchanged; est. 0.1%
  • Core inflation rose 0.1%; est. 0.1%; rose 1.5% Y/y


  • PCE prices was unchanged; est. 0.0%; rose 1.4% Y/y
  • Compensation at 0.4% in June vs 0.2% the prior month
  • Savings rate at 3.8% in June vs 3.9% the prior month

So again, a mixed bag, with the inflation picture slightly better than most probably expected, but the broader read on the temperature of the economy is, well, tepid.


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