Looking ahead, expect a huge surge in PCE inflation.
Today the BEA released Personal Consumption Expenditures (PCE) price inflation for November.
The BEA still needs to catch up from the lack of data collection due to the government shutdown.
PCE Year-Over-Year Details
- PCE: 2.8 percent
- Core PCE: 2.8 percent
- PCE Goods: 1.4 percent
- PCE Services: 3.4 percent
PCE Month-Over-Month
PCE Month-Over-Month Details
- PCE: 0.2 percent
- Core PCE: 0.2 percent
- PCE Goods: 0.2 percent
- PCE Services: 0.2 percent
Those are relatively tame numbers. However, the annualized rates are still over the Fed’s 2.0 percent target.
Looking Ahead
Looking ahead the Fed has a huge problem as shown in the lead chart.
I expect the trend in PCE goods to continue because of tariffs.
More importantly, I expect health care expenses to jump ~8 to 10 percent in January, not counting the Affordable Care Act (ACA) commonly known as Obamacare.
Health care is ~17 percent of the PCE. Unlike the BLS, the BEA does not publish monthly weights.
If my guess is accurate, then year-over-year PCE inflation is poised to surge 1.7 percentage points (not counting ACA).
Counting ACA I expect a 2.0 percentage point surge in PCE Services due to the jump in health care premiums, most of it in January.
Fed Projections
Fed PCE Projections
- PCE: 2.4 percent, down from 2.6 percent in September
- Core PCE 2.5 percent (healthcare is a part), down from 2.6 percent in September.
The Fed sure thinks I am wrong. And maybe I am since no one else seems to agree with my projections.
Expect a Big Divergence This Year Between CPI and PCE Inflation
Yesterday, I commented Expect a Big Divergence This Year Between CPI and PCE Inflation
Rent and Healthcare go different ways in 2026. Plus there are huge timing issues.
Year-over-year discrepancies between the CPI and PCE rate to be huge.
We will find out within a month whether this view is accurate.
If we do have the 1.5 to 2.2 percentage point surge in PCE due to health care, I fail to see how the Fed comes close to its year-over-year targets unless we have a huge demand collapse due to layoffs and recession.
That’s possible. But gold and commodities sure look more like stagflation.
We will see, mostly in January with some follow-through on corporate health plans in Q1, if the surge view is correct.
Click previous link for details and discussion.
Regarding the stagflation theory, please see Might the Next Interest Rate Move by the Fed Be a Hike?
It’s time to discuss the real possibility of a renewed surge in inflation.
Q: Wouldn’t this be spread out in the PCE?
NO!
The CPI is Spread Out.
PCE is Immediate.
I went over this in detail.
Expect a Big Divergence This Year Between CPI and PCE Inflation
https://mishtalk.com/economics/expect-a-big-divergence-this-year-between-cpi-and-pce-inflation/
This is closer to the truth. All this bs about coming down is just that.
Moar rate cuts will surely fix this.
All government inflation numbers are Orwellian lies.
the gypsy fortune teller down the block tells more truth and reality than any bullshit numbers like PCE or CPI coming out of this crumbling evil empire. why waste your time on this shit. we all know when our benjamins are worth less and less, depending on one’s expenses in life. which are all different.
What’s this nonsense difference between “immediate” and spread out”? We all know that everything we hear from the government is lies, and only lies. The entire inflation concept is based on the illegal and unconstitutional FRN dollar, i.e., a house of cards.
Both CPI and PCE will jump to double digits in seconds once China and the BRICs nations feel like they no longer need to transact in dollars.
We’re talking SECONDS.
Gold surpassed $4900 this afternoon.
Imbeciles.
“We know that they are lying, they know that they are lying, they even know that we know they are lying, we also know that they know we know they are lying too, they of course know that we certainly know they know we know they are lying too as well, but they are still lying. In our country, the lie has become not just moral category, but the pillar industry of this country.” Timely when Solzhenitsyn was quoted in The Observer in 1974. And timely now.
same shit. just different evil empires.
dow/gold ratio around 11. was at 2 in 1932 and down to 1 in 1980. we could easily go back to 1 or 2. maybe less if donald defaults on the tbills…..and starts ww3. sounds like he tried to assasinate putin at his home a few weeks ago. i’m sure vlad is waiting for revenge. this country hasn’t seen real bad stuff since 1860s.
Gold’s Movement Aug 1919 – Jan 2026
Aug. 1919 = $20.00
Feb. 1968 = $40.00 (50Y from $20 to $40)
Apr. 1976 = $128.00
Feb. 1980 = $640.00 (12Y from $40 to $640.00
Oct. 2000 = $264.00
Sep. 2011 = $1,629.00
Aug. 2020 = $1,970.00 (40Y from $640 to $1,970.00
Jan. 2026 = $4,960.00 (6Y from $1,970 to $4960.00
So From:
Aug. 1919-Oct. 2000 (81Y) $20.00 to $264.00
Sep. 2011-Jan. 2026 (15Y) $1,629.00 to $4,960.00. (Jan. 2024-Jan. 2026 from $2,039.00 to $4,960.00 (2 Years!).
Gold not being Manipulated at all… Nobody preparing for a Big Selloff… why wouldn’t one want to more than double there money, and at that level, and in 2 short years? Why everybody will, and should if they are truly Investors.
Oh, and don’t forget to buy back a boatload at $2,500.00? Or so, and await the next Gold Rush?
It will be fun when the Fed starts to cut rates aggressively later this year after Trump gains control of it. Powell’s term is ending as chair in May 2026. It will be interesting to see Fed cut five times in 2026 and see inflation and long term rates explode.
I hope Trump instructs the new Fed chair to wait till midterms are over but I am not sure about that.
When the federal banking system is controlled by politicians the results have been historically devastating.
I see no reason to expect this to be different. If anything, I expect it to be substantially worse because of the people involved.
If Trump gets control of the Federal reserve. I do not know of a safe haven for Americans other than gold.
gold has always been the best investment, every century, after calculating after tax, after confiscation by wars and governments of r/e and stocks and bonds…………there is nobody out there, who is sane, who pays tax on gold gains. guess which countries in the rich world has the most gold ownership for families. hint. it’s countries where the GDP is one third under the table already.
From an investors perspective it is important to consider that bond yields have risen despite 3 rate cuts.
QT is now gone and QE lite has started.
Oil/gasoline has bottomed at around $60/bbl and pretty much everything is pointing to higher inflation,
The bond market and precious metals markets are definitely signaling higher inflation across the board.
Could it be that the bond market and precious metals is signaling a lower dollar?
The effect on inflation would be the same.
we will be fortunate if the 1965 to early 80s stagflation is what we are in for. i think much worse. closer to the USSR from late 80s to late 90s………..
Health care inflation will hit people hard but the stealth inflation will be utilities (electric, gas and maybe internet). This year, the US will run out of electricity for all the chips coming onboard, it’s a mathematical certainty at this point so either:
The internet providers use electricity too and it might be a battle between big tech for electric turf. In any event, costs go up across the board because that’s what an imbalance of supply/demand causes. Anyone with a functioning brain should have seen this coming a mile away and positioned for profits already and they will be juicy and electrifying (puns intended).
Of course people will howl to the moons of Jupiter and complain to government and maybe Trump will open his mouth and cause another market crash.
Another scenario is those chips move to China, the smart people over there have plenty of electricity and are building a ton more capacity.
you nailed it. imho. i remember the blocks of squatters in the 80s in lower east side nyc. teens who had jumped the iron curtain and made their way to abondoned buildings. they tapped into electric and had their own police force against the crack heads and gang bangers and hells angels in the hood. i must say those were wild parties they had. i learned a great deal from them. my amerikan born pals were quite naive and soft. a good thing i guess. we all had such easy lives the past 80 years in pax dumbfuckistan. nothing to really think about to survive. shit might be changing going forward………..
Good comment. In the good old USA destroying cheap green power generation is in vogue. Two dams on the Elwha River in NW Washington State and 4 on the 4 on the Klamath River are destroyed or scheduled for destruction. As a stupidity bonus, water storage for domestic, industrial, agricultural and fire suppression use are also destroyed. Humans suffer but the fish can swim.
Isn’t PCE inflation seasonally adjusted? I think the 8-10% increase in health insurance premiums for example would be spread out over 12 months.
Q: Wouldn’t this be spread out in the PCE?
NO!
The CPI is Spread Out.
PCE is Immediate.
I went over this in detail.
Expect a Big Divergence This Year Between CPI and PCE Inflation
https://mishtalk.com/economics/expect-a-big-divergence-this-year-between-cpi-and-pce-inflation/
How do goods prices rise so little with all those fat tariffs imposed?
Explained countless times.
1. Front running tariffs with huge inventory builds (now depleted)
2. Massive TACOs
3. Tariff avoidance through Vietnam, Mexico, etc
4. The average reciprocal tariff started out at ~50 percent (weighted average) It is now 18 percent or so. Factor in avoidance and it is about 13 percent.
Mish
I thought about commenting on the ‘massive TACO’ lol….
You can order fewer if they’re big. 2 Massive tacos = 4 skimpy ones. Needs a hedonic adjustment.
So in other words, tariffs are not the big deal you made them out to be?