More Stagflation

The last of 2022’s notable US economic data came in broadly as expected, albeit with a lean in the stagflationary direction versus consensus.

PCE prices rose 0.1% in November from the prior month, while the core gauge rose 0.2%. Both prints were benign and in line with estimates.

But the core gauge rose 4.7% YoY, slightly more than expected. The upside surprise was minuscule (consensus was 4.6%) but it was uncomfortable in the context of Q3 GDP revisions released on Thursday, which likewise suggested core inflation is “stickier” and higher than the median economist was inclined to believe.

The 12-month print on the headline PCE gauge was 5.5%, the coolest since October of 2021, but obviously nowhere near target.

Although the slower monthly prints were welcome, there doesn’t seem to be a lot of progress here, if we’re being totally honest. For example, any good vibes engendered by November’s in-line MoM readings were partially negated by upward revisions to the monthly prints from October, both for headline and core.

A gauge of services prices rose 0.4% last month, the same as October’s monthly gain, although I’d note that unrounded, November’s pace was slower. Goods prices, meanwhile, moderated from the prior month.

Price-adjusted spending flatlined, ostensibly underscoring the impact of inflation, but spending on services rose, driven by food services and accommodations. The increase in current-dollar spending (which was below estimates, by the way) was driven by spending on housing, which shouldn’t surprise anyone.

The saving rate rose for the first time in months, but at just 2.4%, it remained near record lows in November.

All in all, it was difficult to spin Friday’s data as good news. Core inflation was higher than expected on a 12-month basis, October’s monthly inflation prints were revised higher, real spending flatlined but ticked up in services (where the inflation is), housing costs remain burdensome, the savings rate is near a record low and a modest beat for incomes was driven by higher private sector wages, perhaps underscoring the wage-price spiral that Fed officials variously suggest doesn’t exist.