Core PCE (excluding food & energy):
- Prior was +2.6% (revised to +2.7%)
- Core m/m +0.4% vs +0.3% exp
- Unrounded core PCE +0.38% vs +0.285% m/m prior
- PCE excluding food, energy and housing % m/m vs +0.3% m/m prior
- Supercore (services ex-shelter) % m/m and % y/y
- Services inflation +0.375% m/m
Headline PCE
- Headline PCE +2.5% y/y vs +2.5% expected
- Deflator +0.3% m/m vs +0.3% expected
- Unrounded headline +0.34% vs +0.325% m/m prior
Consumer spending and income for February:
- Personal income +0.8% vs +0.4% expected. Prior month +0.9% (revised to +0.7%)
- Personal spending +0.4% vs +0.5% expected. Prior month -0.2% (revised to -0.3%)
- Real personal spending +0.1% vs -0.5% prior (revised to -0.6%)
- Savings rate 4.6% vs 4.6% prior
Treasury yields are lower on this despite slightly higher yields. The dollar was little change initially but is now slipping. I suspect the market is a bit more focused on the spending numbers than the inflation data, given tariff worries.
For the Fed, the problem here is that a +0.38% m/m core reading is going to now stick in the index all year and that’s a 4.66% pace, or it’s 20% of your annual inflation allocation. Even if you take Jan and Feb together, core is running at 4.06%, more than double the Fed’s target.
For now, the bond market isn’t concerned but we had Musalem crack open the door to rate hikes this week and that’s a tail risk to watch.
At the same time, there are no estimates of 800,000 US government-related layoffs related to austerity and that alone would push up unemployment by 0.5 pp. Hard to imagine problematic inflation in that environment.
This article was written by Adam Button at www.forexlive.com.