Fed wait-and-see program on interest rate cuts supported by worst 6 months of PCE inflation for basic services

Not only housing, but also other basic services. However, durable goods inflation has returned to normal.

The Fed’s preferred “core” PCE price index, which excludes volatile components of food and energy, jumped 3.0% year over year in April from March (non-annual, 0.249%). Higher than the Fed’s target of 2%, according to the Bureau of Economic Analysis today. But it was a smaller increase than in the previous three months, although it was much hotter than in late 2023 (blue in the chart).

The annual six-month core PCE price index, which strips out most of the erratic monthly wobbles that Powell often cites, accelerated to 3.2%, the worst increase since July of last year (in red).

Personal consumption expenditures price index “basic services”, Which excludes energy services, rose 3.6% year over year in April compared to March (blue in the chart below).

The six-month index of personal consumption expenditures for basic services jumped 4.4% year-on-year, the worst increase since June last year.

Basic services are where inflation takes hold, and it’s where the majority of consumer spending goes. They include housing, health care, insurance, transportation services, communication services, entertainment, etc. Fed spokesmen constantly referred to basic services.

In the monthly undulations (in blue), you can see how core services inflation fell from its peak in late 2022 (in the range of +7.0%) to August 2023 (+1.8%), which was the low point. But since then, events have accelerated again in a worrying way.

Durable goods inflation He disappeared. The PCE price index for durable goods fell by 2.8% year-on-year in April compared to March (in blue).

The six-month index fell by 1.4%, almost the same as the previous month (in red). It tends to operate in a slightly negative range during normal times amid efficient manufacturing and globalization. Durable goods include automobiles, appliances, electronics, furniture, etc.

So durable goods inflation is back to normal levels and in line with the Fed’s 2% target. The problem of inflation lies in services, as we saw above.

Year after year…

Overall The PCE price index, which includes food and energy, rose 2.7% in April from a year ago, roughly the same as the increase in March (blue in the chart below).

Nucleus” The PCE price index rose 2.8% in April from a year ago, roughly the same as the increase in the previous two months (in red). The Fed’s target for this measure is 2%.

“Essential services” The PCE price index rose 3.94% in April from a year ago; It has barely changed over the past five months. In December, it rose by 4.03%. As seen above, the six-month core services index has risen more than 4.2% over the past three months

Inflation of basic services in detail.

PCE Housing Price Index It jumped 5.0% year over year in April compared to March, a slowdown from previous months, but higher than it was already in August.

The six-month index jumped 5.5% year-on-year, roughly the same rate as the previous month. The situation has not changed significantly since November and remains high.

The housing index includes rent factors for renter-occupied housing, imputed rent for owner-occupied housing, group housing, and the rental value of farm housing.

Financial services and insurance:

Personal consumption expenditures price index for other basic services (broadband, mobile phones and other communications; delivery; home maintenance and repairs; transportation and storage; education and training; legal, accounting and tax services; benefits; funeral and burial services; personal care and clothing services; and social services such as children’s homes). Elderly services, rehabilitation, etc.):

Healthcare Price Index PCE:

Transport Services Price Index (PCE). (Car maintenance and repair, car rental, parking fees, toll fees, airline ticket prices, etc.). A bit volatile from month to month, isn’t it?

PCE entertainment services price index (Cable, satellite TV, radio, live broadcast, concerts, sports, movies, gambling, veterinary services, tours, RV maintenance and repair, etc.):

Food Services and Accommodation Personal Consumption Expenditures Price Index (Restaurants, hotels, motels, vacation rentals, cafeterias, coffee shops, delis, etc.):

Personal consumption expenditures (PCE) price index for non-energy utilities (Sewage, water supply, sewerage and garbage collection):

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Editor’s note: The summary points for this article were selected by Seeking Alpha editors.