While previewing this week’s marquee US macro release, I noted that although the official consensus call for Friday’s core PCE print was 0.3%, there was “considerable ’round-up’ risk,” where that meant a 0.4% print wasn’t out of the question.
Even at the midpoint, I went on, 0.35% is double the monthly pace consistent with 2% annual price growth on the Fed’s preferred measure of underlying inflation. So, either way, the update from the BEA was destined to underscore the still-stubborn character of core prices across the world’s largest economy.
Sure enough, the core PCE print was 0.4% (0.365% unrounded), which counts as an overshoot. The range was 0.1% to 0.4%.
As a quick aside, economists are fairly adept at doing this particular math ahead of time. They already have PPI in hand each month, and that’s a big help. Everyone knew the risk was a round-up to 0.4%. So, my question is this: How could a highly-paid, professional economist possibly guess 0.1% (i.e., the low-end of the forecast range)?
Anyway, 0.365% is too warm. Twice over, in fact. The only saving grace is that the market expected this, even if some economists plainly didn’t. Note also that February was a rare month during which core PCE ran faster than core CPI.
The YoY print on the core measure was 2.8%, a tenth quicker than consensus. As the chart shows, the MoM reading was the warmest since January of 2024 and the second fastest monthly pace since early 2023.
The headline PCE print was 0.328% MoM and 2.5% YoY. Those were both in-line with estimates. The so-called “supercore” measure (i.e., services price growth excluding housing) rose 0.4% (0.372% unrounded up from 0.244% the prior month), far too brisk.
Insult to injury: Personal spending was weak, rising 0.4% versus the 0.5% expected, and just 0.1% in real terms, far slower than forecast. Personal income came in near the top-end of the range, rising 0.8%, and the saving rate was 4.6%.
Note that real personal spending receded sharply in January (by 0.6%), so the meager 0.1% rebound in February isn’t encouraging.
Bottom line: This was a stagflationary release. Trade it as you will.
The overpaid economist joke is getting a little old chief.
I think the problem is that economists (should I put that in quotes) like Kevin Hassett and Peter Navarro could be included in the group.
Not to worry, Trump told automakers they better not raise prices. So price controls are next.
Before or after a cap on the 10 year?
Remember what happened when Tricky Dick tried those. I was directly involved in that mess on the corporate side and my cousin was Counsel to the House and co-wrote the legislation. To say what happened violated community morality would be putting it mildly.
How do de-globalization and reshoring to the U.S. impact inflation, both domestically and globally, in the short and long term?
Increases prices for everyone via higher costs. Optimistically, could increase wages for a very small pct of popln via higher manufacturing employment.
I’d agree but there are not enough people to hire for the jobs that will be needed.