First Decline in PCE Prices since 2020, Soft Landing Case Boosted by Real Disposable Personal Income

The Federal Reserve’s preferred inflation gauge, the core PCE Price Index, which omits food and energy, increased 0.1% month-over-month (consensus 0.2%), taking the year-over-year change to 3.2% from 3.4%. The PCE Price Index declined 0.1% month-over-month consensus 0.1%), taking the year-over-year change to 2.6% from 2.9% in October. That was the first decline in the PCE Price Index since 2020. Prices are moving in the right direction for the Fed, but caution needed as Fed speakers’ remarks remind to think about cutting rates soon. The 0.3% month-over-month jump in real PCE combined with a 0.4% increase in real disposable personal income and the disinflation in the PCE Price Indexes fits the soft-landing case for now.

Personal income increased 0.4% month-over-month in November, as expected, following an upwardly revised 0.3% increase (from 0.2%) in October. Personal spending was up 0.2%, also as expected, following a downwardly revised 0.1% increase (from 0.2%) in October.

Federal Reserve Governor Chairman Powell has reminded us at the FOMC that the Fed’s key influence or measure for inflation is the core PCE index.

The PCE price index is closely watched since it is the preferred inflation measure of the Federal Reserve, which began raising interest rates for the first time since the pandemic began to tamp down rising prices. The Fed has traditionally tended to focus on the PCE price index because it gives a more complete picture of consumer prices, while the public and many investors tend to be more aware of the Labor Department’s CPI figure.

The market seems to go through phases of trading on the premise that the US is at or close to, peak inflation. The shock will come if better inflation news in coming months is not coming.

Highlights

Core PCE Index November 2023

  • US PCE Core Deflator (Y/Y) Nov: 3.2% (est 3.3%; prevR 3.4%)
  • US PCE Core Deflator (M/M) Nov: 0.1% (est 0.2%; prevR 0.1%)
United States Core PCE Price Index MoM
United States Core Personal Consumption Expenditure Price Index
United States Core Personal Consumption Expenditure Price Index

PCE Index Novemeber 2023

  • US PCE Deflator (Y/Y) Nov: 2.6% (est 2.8%; prevR 2.9%)
  • US PCE Deflator (M/M) Nov: 0.1% (est 0.0%; prev 0.0%)
United States PCE Price Index Annual Change
United States Personal Consumption Expenditure Price Index
United States PCE Price Index Monthly Change

US Personal Income and Spending November 2023

  • Personal Income Nov: 0.4% (est 0.4%; prevR 0.3%)
  • Personal Spending Nov: 0.2% (est 0.3%; prevR 0.1%)
  • Real Personal Spending Nov: 0.3% (est 0.3%; prevR 0.1%)
United States Personal Income
US Personal spending

PCE Price Index

CPI v PCE Inflation?

The two inflation measures have different weightings. The CPI captures out-of-pocket expenditures by urban consumers. The PCE price index is broader, including spending on behalf of households, for example, employer-sponsored healthcare plans, Medicare and Medicaid. The PCE price index as a result has a heavier weight for healthcare prices. Meanwhile, housing costs account for a much bigger share of the CPI than the PCE price index.

Source: US Bureau of Economics

From The TradersCommunity News Desk