Core PCE comes in 0.2% MoM vs 0.2% exp 4.2% YoY vs 4.2% exp

[jake_dufner]

https://www.barrons.com/articles/july-pce-inflation-report-data-today-ab812f3

Looks like if MoM core PCE continues to rise at 0.1~0.2% MoM we will achive 2% inflation.

Anecdotally, looking at payroll and housing inventory data released eariler this week and interest rate hikes not yet fully baked into the economy yet, it looks like there’s a high chance that interest rate hikes are over and the fed will achive their 2% inflation goal.

 

[thisdogdonegone]

@jake_dufner not really. Powell's closely monitored "supercore" inflation month over month went up to 0.5% and close to 4% 3-month annualized. It was on a downward path at around 0.2% month over month in the last 2 months and close to 2% 3-month annualized.

For context, 0.5% month over month on the supercore is basically where we've been at all of 2022 and 2023, which was when Powell said that core services ex. housing hasn't moved at all.

 

[resjudicata]

@thisdogdonegone Yeah, PCE core services ex-housing is definitely pushing back the Fed's easing cycle. Fed dove Rafael Bostic also made comments that the Fed must stay "resolute" until they hit their 2% target.

Whether we get one more 25 bps hike or not, this PCE report is pushing rate cuts further into the future. Expect the 2024 cuts to get pushed back when they release the Summary of Economic Projections next month.*

* Of course we'll get rate cuts in 2024 if we have a deep recession.

 

[outlawingrace]

@resjudicata One more 25 hike? Everyone has been saying one more for a while now. Itll be more than one more.

 

[utvolford]

@outlawingrace I am not sure, the Volker era was about hiking rates above inflation. In that regard we are sufficiently tightened with some headroom for more inflation volatility.

I agree with the responder above you that it mostly implies higher for longer and no easing, not necessarily further hikes.

 

[thisdogdonegone]

@resjudicata pretty sure the estimated 0.7% Q3 GDP boost from Barbie/Oppenheimer movie weren't even fully reflected on this July print. Recent gas price increases will seep into core inflation in the next few months as well.

 

[godhasmynumber]

@thisdogdonegone And rent inflation is about to plummet...that's why its an aggregate. Gas was expensive for like two weeks and nowhere near that $5+ we had during the refinery backlog.

 

[thisdogdonegone]

@godhasmynumber and core goods won't keep deflating this heavily forever so that basically cancels out? By the way, your "rent inflation is about to plummet" has been dropping for like 6 months now. monthly housing inflation are now increasing at summer 2021 level. And in 4-5 months, the housing rebound since early 2023 will start showing up on the inflation print.

We don't need gas to go back to the early summer 2022 level. Just the fact that it goes up, and stays up, will stop subtracting from the inflation numbers and even worse, raise various components in core inflation.

 

[godhasmynumber]

@thisdogdonegone

By the way, your "rent inflation is about to plummet" has been dropping for like 6 months now.

Yes, but not nearly as much as the real-time figure. It's the complete inverse of what transpired during the come up:

https://en.macromicro.me/collections/5/us-price-relative/49740/us-cpi-rent-zillow-rent-yoy

Peak rent growth occurred between February and March 2022. It wasn't fully captured on the CPI until April 2023. This is due to the fact most rent terms are 12-months long. The current inflation read is 2X actual, regardless of how much it's dropped already.

 

[thisdogdonegone]

@godhasmynumber nope about 5-6 prints ago MONTHLY housing inflation already started dropping, and MONTHLY housing inflation is back to early summer 2021 levels, and not that far from pre-COVID levels.

Why is the current reading 2x actual? Again why are you using YoY number lol.

And here's the problem. Even if YoY housing deflation temporarily brings YoY inflation down to mid 2% or whatever, we all know from the lag effect that it's going to accelerate back up, so whatever temporary inflation number we go down to, won't even last.

 

[godhasmynumber]

@thisdogdonegone

Again why are you using YoY number lol.

Okay, so we can just agree you don't actually know what you're talking about...

And here's the problem. Even if YoY housing deflation temporarily brings YoY inflation down to mid 2% or whatever, we all know from the lag effect that it's going to accelerate back up, so whatever temporary inflation number we go down to, won't even last.

...but then you seemingly admit it may play a factor, while dismissing it with other nonsense.

 

[thisdogdonegone]

@godhasmynumber I'm only entertaining the housing inflation because you brought it to the discussion. Look at my original comment. I was actively excluding it from the discussion, since we know it has a lag.

And the original point was even if you exclude housing, which you seem to think is the big problem (but the Fed doesn't think so), we still have inflation that's not even near the target. It's easy to target housing inflation. It's very interest rate sensitive. It reacts very quickly to rate hike. We have real time data. It's harder to hit other inflation linked to the labor market. It has very long lag time, and not very interest rate sensitive. That's what the Feds are concerned about.

Btw, feel free to let me know where you pulled the "current inflation read is 2x actual".

 

[godhasmynumber]

@thisdogdonegone

I was actively excluding it from the discussion, since we know it has a lag.

Because you opted to cherry-pick a stat that gave you the "negative" takeaway you wanted. Sure there's some interest in the less volatile core components, but the end target is headline...nothing else.

And the original point was even if you exclude housing, which you seem to think is the big problem (but the Fed doesn't think so), we still have inflation that's not even near the target.

The lagging nature assists the hawkish stance. Its not a problem, because they know about it. We're sitting at 1.9% CPI 3-month annualized, WITH an inflated housing figure, which accounts for 30% core. There's a reason their discussion on the topic has become a fixed statement about 'higher for longer'. They have no incentive to announce they're on track and seeing significant progress, because that could ultimately unwind part of what's been achieved. That's Fed speak 101. You can only reach a "nowhere near" belief with selective exclusions.

It reacts very quickly to rate hike.

Yes, in real time. Unfortunately, we're talking about inflation measurements.

Btw, feel free to let me know where you pulled the "current inflation read is 2x actual".

I mean, I gave you the link. You opted to move the goal posts and claim that the YoY figure doesn't matter while lacking the ability to infer that matching 2021 MoM figures doesn't mean much when 2021 was the year we saw most real-time housing inflation. Depending on the area, that real-time MoM figure is 0 or negative.

 

[iustusetpeccator]

@resjudicata The uptick in core services ex-housing was anticipated this month. It's being driven by a spike in financial services from the market moving up in July.

If you exclude portfolio management, core services ex housing increased by 0.25. Not sure if something like that will be sticky, it may smooth out in future reports.

 

[eddym67]

@resjudicata I think those of us that studied economics a mostly agree that rate cuts in the next 12 months means we're in deep and extremely tight territory=bad recession so Fed will be forced to decrease to let off some steam.

 

[imafighter]

@resjudicata Even if they reach the 2%, if they cut rates, inflation is gonna go back up again that they will have to raise rates again so the only way to go is hard landing!!!

 

[godhasmynumber]

@thisdogdonegone

not really.

Well the market certainly doesn't agree, but the change of another hike just fell for the next 4 meetings.

 

[thisdogdonegone]

@godhasmynumber are you basing the inflation trajectory on daily market moves?

how many times have the Fed had to correct the bond market repeatedly? summer 2022, Feb 2023, even the last few months.

 

[godhasmynumber]

@thisdogdonegone

are you basing the inflation trajectory on daily market moves?

I mean, a lot of favorable data has pulled back the spike, over the last 10 days, just two weeks before the next CPI report.

how many times have the Fed had to correct the bond market repeatedly? summer 2022, Feb 2023, even the last few months.

You're literally going back 6 months to find a sizeable expectation shift. What's occurred over the last 3 months has been the result of numerous things, but the dot plot has remained pretty consistent for awhile now. Beside some concern of a single additional rate hike you had:

• Fitch downgrade
• Japan yield curve control shift
• Waning recession expectations

But sure, lets pretend contrarian Redditors know how to interpret the data better.

 

[prayerdon]

@thisdogdonegone Where can you find "PCE core services ex-housing" which indeed is preferred by Powell? Any link? Don't see it immediately on the pce data release for July on the bea.gov site.