The Last Time Inflation Was This High, Jay Powell Was 29 Years Old

Real personal spending was flat in the US last month, data out Thursday showed.

Economists expected a slight uptick. The headline personal spending print, a 0.6% increase, matched estimates (figure below).

Personal incomes, meanwhile, rose 0.4%, in line with expectations.

The increase in current-dollar spending was almost entirely attributable to services. The government cited a notable rise in expenditures on housing and utilities.

Incomes, meanwhile, were bolstered by rising compensation (wages and salaries) both in the private sector and in government employment.

No one will be surprised to learn that PCE prices came in hot. The headline MoM print matched estimates, posting a 0.6% gain. The YoY read was a scorching 5.7% (figure below).

Note the red arrows. I’m not sure how flexible “average inflation targeting” was supposed to be, but it’s probably fair to declare “mission accomplished” — just don’t say it on an aircraft carrier, with a giant banner behind you.

Unfortunately for the Fed, core prices rose more than expected. MoM, core PCE was up 0.5%, ahead of the 0.4% consensus. The YoY reading, at 4.7%, was the highest since 1989.

In the interest of providing a bit of comic relief at a perilous juncture for the economy, Jerome Powell was 36 years old the last time core prices were rising at a comparable rate. He was 29 the last time headline inflation was at 5.7%.

Amusingly, the data series doesn’t go back far enough to capture his birthday (figure above).

Commentary was sparse on Thursday given the proximity of the Christmas break in the US. Lacking alternatives, I decided to begrudgingly quote Larry Summers, who spoke this week to Bloomberg’s Stephanie Flanders.

“My fear is that we are already reaching a point where it will be challenging to reduce inflation without giving rise to recession,” Summers remarked, adding the following,

Should we raise the minimum wage? Absolutely. Should we empower unions? Yes. But this kind of policy—there are no examples of successful inflationary policy that has worked out to the benefit of workers. And there are dozens of examples from the Labor Party in Britain in the 1970s to multiple Latin American experiences to our own experience in the ‘60s and ‘70s where it backfired with respect to the very people it was trying to help.

It’s getting more difficult to argue with Summers, especially when he softens his tone by feigning humility. “Stephanie, you know, I’ve been right this year, but there have been plenty of years when I’ve been wrong,” he said, during the same interview.