Following the BEA’s release of PCE price inflation, let’s discuss inflation. 
PCE vs CPI
The PCE price index is the Fed’s preferred measure of inflation.
PCE includes prices paid on behalf of consumers such as Medicare and corporate health insurance.
The CPI only counts items directly paid by consumers.
As a result of those methodology differences, the CPI overweighs rent while the PCE overweighs health care.
Both indexes are flawed because neither includes home prices, only rent. In general, inflation matters, not just consumer inflation.
Five Measures of Inflation Detail
The Fed has made no progress, negative progress actually in Core PCE, its preferred measure of inflation.
Bear in mind, neither the CPI nor PCE directly factor in home prices but they both factor in rent.
Importantly, the CPI overweighs rent while the PCE overweighs health care. And the Fed is more concerned about services than goods.
Real Spending Rises 0.1 Percent, Real Disposable Income Up 0.4 Percent
I discussed PCE prices this morning in Real Spending Rises 0.1 Percent, Real Disposable Income Up 0.4 Percent
Let’s recap the key PCE details.
Within services, the largest contributor to spending was the increase was health care (both hospitals and outpatient services).
Excluding food and energy, the PCE price index increased 0.3 percent.
Trump Inflation on the Horizon
Trump is threatening huge increases in tariffs which is inflationary.
November 25: Trump Threatens 25 Percent Tariffs on Mexico and Canada on Day One
Trump says he will unilaterally scrap his own allegedly “Best in History” trade deal with huge tariff hikes on our top two trading partners. Is this constitutional?
November 27: What Industries Will Suffer the Most Under Trump’s Plan to “Make Tariff’s Great Again”?
Trump is upping the rhetoric on Mexico, Canada, and China on top of previous tariff threats. Who will be hardest hit?
If you think Trump will do anything about the deficit, you are delusional. And Tariffs will increase inflation in a stagflationary way.
Unless you believe in a very hard recession to collapse demand, you have the answer to my lead question.
It doesn’t matter if it’s Constitutional, SCOTUS has made Trump immune from consequences if he is acting in his official presidential duties. Does the Constitution really matter any longer, with presidential immunity that Trump is MUCH more likely to use for personal gain than Biden ever was (0% chance he was gonna do that)?
Transitory compared to what?
Wolf reported that last Friday JPowell said that there’s no way the Fed is going to revise its neutral 2% neutral rate up. Why? It will cause interest rates to rise. No duh!
Inflation has most likely found its trough. Trump stands a good chance of increasing economic activity in his first 12 months, so an expectation that core PCE could rise from 2.8% last month up towards 3.5% is not out of the question.
Fortunately, 30YFRM will stay higher for longer, causing home prices to decline further which means property taxes & insurance should start to ease some.
It was not inflation in the first place… how about that.
It was synthetic price rises giving the impression of inflation, to mask what is really happening, which is global deflation. I know Mish will keep denying this, but I bet you in about a year or so from now, he’ll start to feel like Wily Coyote with no cliff beneath him, on this topic. Meanwhile, nobody is disputing global demographic decline.
you can’t have inflation without credit expansion, and without economic growth.
…tariffs are also deflationary, because people with less disposible income (on your other post), spend less, and especially when prices rise… and when they spend less, companies make less, and retain staff less, and unemployment completes the cycle.. of deflation.
Introduce a new currency that takes $10 for every one of the new.currency inflation is solved. Demand will collapse because of currency chaos. But things will come back to a normal level. Lol
Out there! Hello?
HODL BTC
Mish…thinking you’re missing something here regarding tariffs…I think most are. Agree that tariffs overall are negative, but do think there is a place for them as a negotiation play…in a perfect world, all countries would allow for total free market with no tariffs and no subsidized industries, making any ration for tariffs null. But we don’t live in a perfect world.
With Tariffs, the end cost of the product goes up (true cost plus tariff), which would reduce the demand, thus driving the true cost down to increase demand of the goods. Not sure end prices rising due to tariffs would really be inflationary by my definition of inflation. If the extra revenue generated by the tariffs is used to pay down national debt, reduces excess demand of said good, from a money supply, true inflation perspective, I don’t see that as inflation. One almost could argue is deflationary.
I understand that the consumer wants lower prices, but in a weird way, overall prices relative to income with resulting strengthening of the dollar, more goods produced in the country and better playing field for our exporters, could result in net lowering real inflation and real cost if a basket of goods and services.
Thoughts?
I think you’re missing something here Mish. If tariffs lead to this doomsday scenario, they come with impacting corporate earnings, lower earnings comes a stalling/falling stock market.
And who uses the stock market to measure their success more than anybody?
I don’t think anybody knows what’s going to happen, little alone what the impacts will be, it’s just that simple. Granted, POV doesn’t create click bait for you either.
Sit back, watch, it’s going to be an interesting ride.
By the very definition, nearly everything is transitory, I do believe. I guess interpretation could have an effect?
Inflation however, is a “Cause & Affect” phenomenon I do believe. With that being true, it’s “Brought About” and as such it’s not Transitory as in comes and goes, but purely definitive in the fact of being a “duration of time”, but based on something occurring, and that may play a role in the timeframe obviously. As such, it could very well be permanent (think Nuclear).
PCE = Personal Consumption Expendiitures, BTW.
Booting out illegals should lower healthcare demand as well as end the passing on of the healthcare costs of the illegals to those who pay, the insured and the taxpayer.
“If you think Trump will do anything about the deficit, you are delusional. And Tariffs will increase inflation in a stagflationary way.”
Yes thank you! It’s amazing how markets are pricing in a golden age with Trump and his hedge fund buddy. I suspect it just needs a narrative to sustain itself, especially in an age of moderate interest rates. So in 2023 & 2024 it was AI, and now turbo growth lead by Trump.
Not transitory. IMO Team Biden tweaking to make Trump look bad when revised in 2025.
“Team Biden” is another way of saying: “Team Propaganda.”
Now, it will be TEAM TRUMP. Do not fool yourselves into thinking that everything will suddenly become: “Truth, Justice and the American Way.” Trump is also not superman. Superman worked independently, in that lovely TV show.
Here’s some unrelated election thought-experiment ahead of T-day tomorrow.
We all know of the pending “National Popular Vote Interstate Compact” enacted by 17 states (209 EVs). It isn’t binding yet but if it were in effect, Trump’s EC tally is then 510-28! Total Landslide!
Glad those 17 blue states are on track to support popular vote winner (basically determined by CA/NY). Red States aren’t giving up their autonomy (rightly so).
https://en.wikipedia.org/wiki/National_Popular_Vote_Interstate_Compact
Connecticut is part of that pact, but pushed out the dates to comply. Typically “temporary” solutions are used to achieve permanence. In this case “extensions” or “delays” are used to get rid of policy.
The end of DEI will help cut inflation.
The Supreme Court ruled Affirmative Action is illegal racism.
I was a lone wolf here for a long time warning about inflation, largely because of demographics, when people here were talking about inflation being transitory years ago but I now foresee scenarios where we might get deflation.
Scenario 1. Trump+Musk+Vivek gut medicare and social security.
The reason I keep writing “It’s turtles all the way down and inflation all the way up!” is because 80m people getting handouts from Uncle Sam drive up demand and prices up across the medical ecosystem. Social security is bad but medicare is worse because it’s a bottomless pit of spend. If there is a significant cut in either of these programs, the demand goes away and so do jobs, leading to deflation. The numbers for these programs are in the trillions so cutting them will cause deflation.
Scenario 2. Trump tit-for-tat tariff out of control escalation.
The great depression had part of it’s root causes around mercantilism and if Trump is serious about following through then the world will react accordingly and we’ll enter a tariff death spiral as global economies close off and cause supply chain disruptions. If no products are available there will be no spend.
Until then it’s turtles all the way down and inflation all the way up.
Please dont drink the koolaid and believe for one minute that Trump and his henchmen are gonna get away with even 2% of this Republican orgy of “bringing back the bible.” Even a used car salesman runs out of cars after awhile. None of these “world coming to an end” vectors is gonna come true. Do you believe in the easter bunny too?
scenario /sĭ-nâr′ē-ō″, -när′-, -năr′-/
noun
The American Heritage® Dictionary of the English Language, 5th Edition
The purpose of scenarios is to contemplate what happens if the impossible happens. For me, it’s all about positioning for profit. And I would agree that it would have been less likely if Trump hadn’t a clean sweep of all branches of government. We’ll just wait and see.
And no i don’t believe in Easter bunny or stupid religious nonsense, I am a data driven investor. I do believe you can profit from people that believe that crap though by positioning accordingly.
I’ve been paying into social security for 40 years. It’s not their money to take.
You were paying for someone else’s social security during those 40 years. The person paying for YOUR social security right now is me and anyone else submitting to payroll taxes. Personally, I want it to stop like now but I’m willing to wait a few more months for it to stop entirely.
Then a sharp goodbye to a huge chunk of the social contract. Hello Road Warrior, because all those urbanized people have to go somewhere in a compressed time. Or rather, hello to this guy and his world: Lenin (I know, bad source) said something like, we are always three meals away from chaos.
It’s not yours either – especially if you married twice and had two spouses that you were married to for at least 10 years, and not only do YOU get to take out more than you paid in, but those other two leeches get to take money based on your contribution THEY NEVER PAID INTO.
Of course it is there money. SS is simply another tax, you have no entitlement. look it up
To some in government, ends justify means and everything of yours is theirs to take, if they can.
Scenario 3. Liberals have another meltdown when they realize Trump is well on his way to fulfilling all of his promises, like he did in his term first.
Woohoo! Heck yeah!
There is no way Congress is going to vote to reduce/eliminate social security or Medicare
Watch France and the UK — canaries in the coal mine. Like much of Europe, it is getting shocks while still doling out in all directions. We will see which components break. Yes, the US has more runway, but not unlimited.
I agree. It’s noting but FUD out there about Trump & SS. He’s consistently said for 8 years that he won’t touch it. While that’s good it does have the bad side that something has to be done in the next 5 years or so to shore up the SSTF. However, the most likely outcome is the raising the taxable income limit.
I bet if you polled 100 people what the limit for SS taxes is you’d get all sorts of answers and mainly shock at how low it is. Well, the 2024 limit is $168,600 which is ridiculously low. Just make everything up to $400K is fully taxable but everything above that is subject to a 1% tax that you don’t get back plus an additional .5% tax for Medicare that, again, you don’t get back.
Another great idea is to setup a trust fund for Part A which is paid out of the general fund. Basically, that’s a blank check which, again, is wrong.
They have done it in the past. The one force more powerful than angry voters is bond vigilantes. You can fool voters if you have money. The bond vigilantes have the campaign money … and their minions host the parties everyone wants to go to.
I would observe: lots of boiling frogs in both directions.
Joke post of the day!
#1 – They’re not going to gut Medicare & Social Security unless you think finding the waste, abuse & fraud is “gutting”. Hopefully, they’ll get serious about implementing at least a few things that will push out the terminal date of the SSTF & Medicare Part B.
#2 – Let’s see what Trump really does & can make stick before we start talking about trade wars. It was reported yesterday that the President of Mexico is “amazingly” ready to start helping close off the boarder. Imagine what a 5-10% tariff on everything imported from Mexico would actually do? Again, most if not all of that tariff would be absorbed by the importer & exporter. They have margins that can be cut into before tariff costs are passed along to the American consumer. Legit!
I don’t believe inflation is transitory this time, Mish. Too much everything debt. First thing that would help is for Fed Monsters to actually use inflation indicators that take into account ALL goods and services we use or are forced to use (insurance, for example) rather than B.S. such as substitution, or this sector is downgraded by being “Too Volatile”. Volatile is just a important as the smooth steady inflation rackets. John Williams’ stats are more honest than Powell.
The president-elect pushes endless conspiracy theories about Soros — why elevate one of his colleagues? https://forward.com/opinion/678454/soros-trump-scott-bessent/
Inflation is permanent.
This is right. The prices that go up don’t ever really come back down. The only thing that fluctuates is the speed at which the dollar loses its purchasing power.
99% loss in 111 years. Prices are 100x
95-98% loss since 1971 “temporary” break of gold convertibility. Most Prices are up 20-50x since 1971.
Prices up, but quality is also down as plastics have replaced metals and planned obsolescence has replaced ‘heirloom ‘
Your. Comment re President Trump is not warranted at this time, particularly in light of DOGE
It is not a question of “is it transitory?” It’s a question of just how much different is inflation now vs. the 1970s. This is important, to see if we can conquer it using the same old methods. In the 1970s, inflation was 98% energy-related and artificial, since the oil shortage was “Arab-made.” This time, it is not energy-related (gasoline pump prices are the same as they were 10 years ago; they are practically giving natgas away). This time its multi-faceted and much harder to tame — whats going up?: property taxes (boomer retirements), home and car insurance (hurricanes) , food (fewer competing companies), services like auto repair (shortage of techs & parts), medical/dental/veterinary (everyone now has student loans), tech/cell phones (not cell phone service). Much harder to defeat just with interest rates.
“inflation is everywhere and always a monetary phenomenon”
Without money supply expansion, some prices rise (eg, oil/energy), others fall as demand drys up due to less discretionary spending after oil/energy hike.
It’ll be much more painful to tame this time … we’re only in the early innings of the 2008+ QE worldwide experiment and speculative-bubble.
Just make sure you dont start throwing out the Milton Friedman quotes. He’s already been proven wrong.
To me, “proven” is rare/impossible in real-world economics … I know many have opinions exist on inflation … send me a reputable source, I’ll take a look. In the theory world of Math, inflation is truly a monetary phenomenon. … real world has those human emotions attached — particularly fear/greed.
What about the massive out of control federal deficit spending and its role in fueling inflation?
So far this fiscal year, federal tax revenue is down 19%, yet spending is up 24%.
Currently, 44 cents of every dollar of federal spending is borrowed. (Spending so far this fiscal year has been $584 billion with $257 billion of that borrowed money.)
Next year, the president that oversaw the largest deficit in history takes over, with several conflicting, moronic plans.
If we end up with inflation or deflation, the deficit will again be the largest in history.
So you’re gonna go to the Covid 19 deficit eh wise guy? First 4 years of Obama were all significantly higher deficits than the first 3 Trump years.
And Biden’s deficits are in this order, and we’ll keep the Trump first Covid 19 year in the mix for completeness and accuracy:
Trump 2020 – highest – Covid 19
Biden 2021 – 2nd highest in history
Biden 2022 – 6th highest in history (nearly tied for 5th)
Biden 2023 – 4th highest in history
Biden 2024 – 3rd highest in history – and climing
So, go ahead and play around with the numbers and point to 2020, I’ll just point to 2021 in a similar fashion and then ask what the hell has happened in 2023 and 2024 with no pandemic in sight and an alleged strong, recovered economy, housing bubbles, stock bubbles and money printing galore.
The Inflation is roaring and the government has no hard check in place. Weird how removing the debt ceiling allowed for the government to just spend away despite no emergent crises like the GFC or Covid.
Still, you point to 2020 if it makes you feel better, while ignoring 2024, 2023 etc.
smh
It would be very instructive to create a cumulative inflation chart. This would show the lock-in of high prices and demonstrate that when the rate of inflation goes down, little relief is realized by the citizenry. I believe that the cumulative would be substantially more revealing.
Have you heard of FRED?
https://letmegooglethat.com/?q=fred
Consumer Price Index Data from 1913 to 2024
This might help in that regard (CPI-U). The math suggests a 23.5% cumulative increase since Jan 2020. It would take a fair bit of deflation to get this back. Hopefully your wages have increased in lock step!
If we talk about future inflation, we must address the massive elephant in the room. No one wants to cover the subject, but it is enormous. That’s war. The Vietnam War destroyed Brenton Woods. England lost its world hegemonic powers after WW Two. The list goes on. It always causes inflation because war produces nothing; it creates demand for useless items, which drives prices higher. Additionally, prices are driven even higher due to the demand for rebuilding.
The US is 32T in debt. What will the debt look like if we enter WW Three in five years? 100T?
We could be 200 Quintillion in debt, which is no problem, but can we service the debt? That’s the problem. Our government is the largest borrower and spender. Tariff inflation will be quaint compared to war.
We must stop war
Meanwhile Biden doing everything he can to worsen the situation in Ukraine. Criminal
Patience… trump will be in soon to allow his master to slaughter the remaining Ukrainians.
Try to contain your arousal.
Am willing to wait a bit before deciding to cancel the will of American people.
Trump doing what is necessary to stop the Border invasion demonstrates his first priority.
Threatening Tariffs to get action on Border security got the attention of heads in Mexico and Canada. It would benefit both countries to act on illegals.
Trudeau gains nothing for Canada by dragging feet and same goes for Mexico.
If Tariffs or threat of them bring jobs to US then working poor will benefit by having a chance at bettering their Lot in Life. Maybe the poor just do not want to remain poor.
Was not the elites voting for Trump but working class stiffs trying to make ends meet.
So bring on the noisy backlash threats and let’s see who owns the court when all is said and done.
Money moving back to N. America out of Europe has been noticeable in currency markets.
So already Trump returning is causing rethinking in multinationals C suite.
French government is once again headed out to deep sea and Germany does not want to turn on printers. Euro is in splitsville land once again.
The distributed lag effect of money flows, the volume and velocity of money, bottomed in August. The ROC will be higher in 2025.
I think there’s a solid chance we could see deflation of assets in the next couple years. If tariffs get applied, they’re going to bleed people dry for essentials, and they won’t have so much income left over to make payments.
… Or we’ll see another largest deficit in US history, as money is blown by incompetent department heads on stupid hysteria, and wages are driven up by competition if they have much success evicting the illegals, leading to more inflation.
I don’t see any good outcomes for anyone but the very wealthy.
Tariffs and reducing the workforce will push inflation higher, and Trumps policies will push the deficit higher at the same time he’ll be pressing the Fed to lower interest rates. This will give corps enormous cover to increase prices because they can blame it on big gov policies. Fox News won’t mention any of it. Profits should bump up as well as the S&P. It will be a great time to own stocks.
So you rather import more 3rd world to keep inflation down?
No. I like inflation when it maximizes corporate profits and stock valuations.