The Fed’s Inflation Confidence Game
When Fed officials met last month, they told us: “Greater confidence” It said inflation had fallen “sustainably” to 2% before it began cutting rates.
It’s safe to say that Thursday’s inflation numbers are unlikely to boost that confidence. inflation is risingand fundamental indicators of price pressure suggest this is unlikely to reverse anytime soon.
The Commerce Department released a report on personal income and expenditures on Thursday. This includes: Personal Consumption Expenditures (PCE) Price IndexThis is the measure the Federal Reserve uses in its 2% target and the forecasts it releases at its biennial Economic Forecast Summary.
The PCE price index rose 0.3% in January, bringing the annualized inflation rate to 4.2%. Core PCE inflation, which excludes food and energy, rose 0.4%, resulting in an annualized inflation rate of 5.1%. Both indicators show that inflation has accelerated since last month.
heading PCE inflation rose to fastest level since September It has been rising for two consecutive months since last year.
of Core index is also rising It rose for the second consecutive month and marked the highest growth rate since January of last year.
The slight softening in the year-over-year indicators merely reflects fundamental effects. The very high month-over-month numbers in 2022 and 2023 are excluded from the 12-month calculation, resulting in lower year-over-year numbers.
rising expectations
The results were not shocking, as Wall Street had expected inflation to rise after higher-than-expected consumer price indexes and producer price indexes. However, it is useful to keep in mind that this is not what other analysts were expecting before he got the January inflation report.
Interestingly, The wedge between CPI and PCE inflation Disappeared in January. Before rounding, core CPI was slightly higher than core PCE this month.
There’s a lot underneath these numbers that is likely to worry Fed officials.
Durable goods prices rise again
Let’s get started inflation of goods. Federal Reserve Chairman Jerome Powell pointed out in a January press conference that much of last year’s disinflation was due to actual price declines. While this is welcome, the Fed actually expected this to happen sooner, and that delay is one reason why the “temporary” prediction was so far off, but it’s possible this situation will continue. is low.
“We’ve had six months of good inflation.” [readings]. But if you look behind those numbers, you’ll see that a lot of it is due to goods inflation, for example, and goods inflation is significantly negative,” Powell said. “It’s a reasonable assumption that over time, goods inflation will level off and perhaps approach zero. That means the services sector will have to contribute more.”
Traders work on the floor of the New York Stock Exchange in New York City during morning trading on February 29, 2024. Stocks opened higher as investors awaited the release of the latest personal consumption expenditure (PCE) inflation statistics. Michael M. Santiago/Getty Images)
PCE numbers for January are: commodity inflation It will be flattened, but partially inverted. Overall commodity prices continued to decline, with the index down 0.2%, led by a 0.4% decline in non-durables.but Durable goods prices actually rose It rose 0.2% for the first time since May.
This has two implications. First, if nondurable goods deflation had not continued in January, overall inflation would have been even higher. This is important because deflation in nondurable goods is unlikely to continue. Higher energy prices, either as a result of global geopolitical tensions or as demand recovers as European and Asian economies recover, are likely to be a source of positive inflation.
Second, the rise in durable goods prices end of deflation That category can be found here. Another concern is the fact that the rise in durable goods prices did not suppress service inflation.
Please feel free to tell us anything.
Services inflation jumps 0.6%This was the fastest pace since January of last year. The categories that so many Fed officials say they’re watching closely are: Services excluding housing and energyIt also rose by 0.6%.To put it into perspective, it is Equivalent to an annual inflation rate of 7.4%.
January’s numbers are unlikely to shatter the Fed’s confidence that inflation is falling to 2%, but they are unlikely to have led to “more confidence.”This is a future report February inflationThe CPI will be released on March 12th, and it will become even more important.
