Fed’s Favorite Inflation Indicator Re-Accelerated In April

One of The Fed’s favorite inflation indicators – Core PCE Deflator – disappointed the doves, printing hotter than expected (headline and core both +0.4% MoM vs +0.3% MoM exp), pushing the YoY inflation signals higher…

Source: Bloomberg

Even more focused, is the Fed’s view on Services inflation ex-Shelter, and the PCE-equivalent shows that is very much stuck at high levels…

Source: Bloomberg

However, while acyclical core inflation continued to slide, cyclical core inflation dipped very modestly but remains extremely high. Cyclical core PCE inflation, which tracks inflationary pressures that are linked to the current economic cycle, is at the highest on record going back to 1985.

Source: Bloomberg

Personal Income and Spending were both expected to rise significantly on MoM basis and did but spending soared 0.8% MoM

Source: Bloomberg

Spending and Income on a YoY basis both rose in April…

Source: Bloomberg

‘Real’ income – admittedly rough estimate, adjusted by CPI – rose marginally in April…

Source: Bloomberg

Breaking down the income side:

• April Private wages up 5.6%, up from 5.3% in March

• April Government wages up 5.3%, up from 5.1% in March

On an inflation-adjusted basis, spending (real) rose 0.5% MoM…

Source: Bloomberg

As a result of all that, and a number of revisions…

…the savings rate in April dipped to 4.1% from 4.5% as credit card use hits new record highs…

Source: Bloomberg

This is absolutely NOT what Powell and his pals wanted to see.