by Mish

"Inflation is nearly at the Fed’s 2.0 percent target, up a sharp 3 tenths to 1.9 percent for the PCE price index which is the strongest rate since April 2012. The monthly gain, reflecting rising energy costs, rose an outsized and higher-than-expected 0.4 percent for the highest reading since February 2013. But the core, which excludes food and also energy, held steady at 1.7 percent though the monthly rate for this reading did rise 0.3 percent which is the largest increase since January last year.

Turning to spending and income, personal consumption expenditures could muster only a 0.2 percent gain, 1 tenth below the Econoday consensus in a marginal gain that belies the enormous strength underway in consumer confidence. And when adjusted for inflation, spending fell 0.3 percent for the largest drop since September 2009.

But income is solid, at a monthly 0.4 percent with the wages & salaries component also rising 0.4 percent. The savings rate steadied in the month, up 1 tenth to 5.5 percent.

The PCE price index will put the pressure on the Fed to raise rates at the mid-month policy meeting. Though it’s not quite at target, its clear upward trajectory makes a successful breach all but certain. Turning back to spending, January’s weak opening points to downward revisions for first-quarter GDP estimates."

Energy Related

On February 14, I wrote about the PPI for January in PPI Spikes 0.6% in January, Largest Jump in 20 Months: Start of Inflation Run? Will February Repeat?

Please take a look. The price spike was a delayed reaction to a November-December energy price surge.

Here is a weekly crude chart from today.

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Crude may go up or down from here. I cannot say which. But the big jump in inflation is related to an energy surge months ago.

This report will have some writers talking about stagflation once again. If energy prices rise, and housing tumbles, they could be right.

Preempt Trump

Did the Fed have an advance copy of this report yesterday as part of its preempt Trump effort? For further discussion, please see:

  1. March Rate Hike Odds Surge to 80 Percent: New Standard for “Surprisingly Strong” Economy
  2. Trump’s Speech: Good, Bad, and Ugly Point-by-Point; Was Trump Preempted by the Fed?

Mike “Mish” Shedlock

US Manufacturing PMI Declines First Time Since September 2009

According to the Markit Flash Manufacturing PMI survey, manufacturing activity in the US declined for the first time since September 2009.

Personal Income Up But Real Consumer Spending Declines Second Month

The BEA’s Personal Income and Outlays report shows personal income rose 0.4% but consumer spending rose a scant 0.1% in February.

Inflation Expectations Rise, Spending Projections Decline

Every month the Federal Reserve Bank of New York does a survey of consumer expectations: Inflation, spending, earning, and jobs.

Consumers Tap Savings to Spend at Fastest Pace Since 2009: Real Income Drops, Core Inflation Slight

In the wake of the hurricanes, consumers tapped savings to spend at the fastest paces since August 2009. Core PCE inflation (not counting food and energy) was 0.1% but overall PCE inflation was 0.4%. The savings rate is the lowest since 2008.

Personal Income, Spending, PCE Inflation Up in April

Consumer spending and personal income increased by 0.4% in April, matching the Econoday consensus estimates.

First-Quarter Real GDP 0.7%; Spending Slowest Since 2009: Nowcast Model Needs Serious Work

First quarter real GDP came in at 0.7% vs an Econoday consensus estimate of 1.1%. Consumer spending was the weakest since the 4th quarter of 2009.

Fed’s Asymmetric Policy: Stagflation Lite Coming Up? Here Already?

Today the BLS reported the CPI for All Items rose 0.4% in October.

Shockingly Weak Retail Sales: Down 1.2% in December, Sharpest Decline Since 2009

Holiday retail spending came in shockingly bad. Retail sales fell 1.2 percent vs economists expectations of a rise.

Consumer Spending Barely Moves Despite Jump in Income: Deflationary Headwinds?

Today’s personal income and outlays report shows consumer spending rose 0.1% while income rose 0.4%. Prices fell 0.1% while core prices rose 0.1%.