Nominal spending was sturdy, inflation-adjusted spending less so, and core inflation was warm last month, this week’s marquee US macro release showed.
Underlying price growth was 0.3% in October, 0.273% unrounded, the BEA said, ahead of the holiday. That was in line with forecasts, but it was the highest MoM reading since March and more than double the post-GFC, pre-pandemic, average.
On a YoY basis, core price growth on the Fed’s preferred measure was 2.8%, the quickest since April.
The headline PCE price prints were 0.2% MoM and 2.3%, as expected.
To reiterate: The MoM core readings are too warm. They aren’t consistent with 2%, and it’s worth noting that so-called “supercore” inflation (i.e., core services excluding housing) ran an even warmer 0.4% in October.
And yet, I don’t think anyone cares about “the last mile” of the inflation fight. Well, anyone other than consumers, but what do they matter, right? As I put it in the Thanksgiving week preview, “It’s not that [the Fed] has resigned themselves to the inevitability of above-target inflation in perpetuity, it’s more that they think this’ll work itself out at some point over the next 12 to 18 months.”
That may be a good bet, but the Trump administration’s policy proposals are a big wild card. For example, on Goldman’s estimates, Trump’s latest tariff threats would impart a 0.9% upward bias to core PCE prices. The Fed needs that like they need mass deportations.
The November FOMC minutes suggested the Committee’s very likely to pause rate cuts either next month or, more likely, at the first meeting of 2025. “Given that [Jerome] Powell has explained away October’s data via the ‘bumpy’ characterization, we’ll caution against attempting to translate [Wednesday’s] core inflation print into a pause in December,” BMO’s Ian Lyngen said. “Instead, the case for either cutting by 25bps or pausing next month will be made by the combination of the November payrolls and CPI releases, both of which the Fed (and investors) will have in hand prior to the December 18 meeting.”
That’s probably the correct read. It’s worth noting that the core price index was revised a tick lower, to 2.1%, in the second estimate of Q3 GDP, also released on Wednesday.
The personal income and spending release for October showed nominal household outlays rose 0.4%, but real spending was almost flat, rising just 0.1% against estimates for a 0.2% increase. The saving rate was 4.4%.
