The Fed's favorite inflation gauge shows price hikes cooled last month

[mahatmakanejeeves]

Source: CNN Business

The Fed's favorite inflation gauge shows price hikes cooled last month

By Alicia Wallace, CNN
Published 8:33 AM EST, Fri January 27, 2023

Minneapolis (CNN) -- The Federal Reserve's preferred inflation gauge showed prices rose at a slower pace last month, indicating further progress in the central bank's battle with higher prices.

The Personal Consumption Expenditures price index, or PCE, rose by 5% in December, compared to a year earlier, the Commerce Department reported Thursday. ... In December alone, prices rose 0.1% from November.

Core PCE, which doesn't include the more volatile food and energy categories, increased by 4.4% annually, down from November's annual rate of 4.7%. On a monthly basis, it was up 0.3%.

Core PCE is the Fed's favored inflation gauge as it provides a more complete picture of consumer costs and spending.

This story is developing and will be updated.

Read more: https://www.cnn.com/2023/01/27/economy/pce-inflation-december/index.html

---

This is the part where I say "From the source," but the Department of Commerce hasn't posted the link yet. When it shows up, it will be here:

Personal Consumption Expenditures Price Index

https://www.bea.gov/data/personal-consumption-expenditures-price-index

The newest one they have is

https://www.bea.gov/news/2022/personal-income-and-outlays-november-2022

At DU, we like to post the news releases before they've been released.

[niyad]

1. Core PCE does not include food or energy. WHY NOT???

[mahatmakanejeeves]

2. Because of their volatility

Core PCE, which doesn't include the more volatile food and energy categories, increased by 4.4% annually, down from November's annual rate of 4.7%. On a monthly basis, it was up 0.3%.

[niyad]

5. Since it stands for Personal Consumption Expenditures, not including what

a great deal of personal consumption expenditures go seems a bit obfuscating and concealing.

[progree]

10. I don't get it. What's being concealed and obfuscated? Every report on inflation that I've seen

Last edited Wed Feb 1, 2023, 12:23 AM - Edit history (3)

CPI, PPI, PCE include both the full measure and the core measure. With the full measure usually being the one in the headlines and presented first. Both in the media reports and the official BLS and BEA government reports.

The Fed prefers the core number for PREDICTING what full measure inflation will be in the next several months, because it strips out the volatile food and especially volatile energy components.

I've seen a multi-decade graph with both core CPI and full measure CPI together on the same graph. Basically, the core CPI looks like a smoothed out version of the full measure CPI, while the latter oscillates around the core CPI.

Edited 1/31/23 to add See below for a 12 month graph comparing full measure CPI and Core CPI End Edit

Contrary to media punditry, the Fed doesn't ignore full measure inflation. Its just not their favorite measure for PREDICTING what full measure inflation will be in the future.

But as far as the inflation that people are currently experiencing and have in the past, the full measure gauge is the only one that matters (e.g. are our paychecks keeping up with inflation? The only meaningful inflation number for that comparison, and what people are experiencing and have experienced in their lives, is the full measure inflation).

Now, when CNN writes so abysmally wrong like this:

Core PCE is the Fed's favored inflation gauge as it provides a more complete picture of consumer costs and spending.

Well, that's one CNN reporter. I've never seen anything like this written before. NO, of course not. A measure excluding food and energy cannot possibly in any way, in any shape, nor in any form, "provide a more complete picture of consumer costs and spending" than the full meaure inflation with those components. That's because the latter is a superset of the former.

Some message board pundits have compared past and present paycheck earnings to core inflation. That's wrong too.

Edited to add in light of #12 below: I'm mostly talking about people who cherry-pick the lower of the inflation measures to compare wage growth to.

I also reassert that for comparing wage growth to past and current inflation, the actual full measure inflation is the proper gauge for what people have experienced and are experiencing.

For predicting future inflation, and for predicting future real (inflation-adjusted) wages, like the Fed, I prefer using core inflation.

Note that core inflation has been running higher than full measure inflation for several months. Meaning that lately, wage comparisons to core inflation look worse than when compared to full measure inflation.

Edited 1/31/23 to add:

Last 6 months ANNUALIZED:
CPI: +1.9%
CORE CPI: +4.6% < == Last 3 months: 3.2% annualized

CPI - https://data.bls.gov/timeseries/CUSR0000SA0&output_view=pct_1mth
CORE CPI - http://data.bls.gov/timeseries/CUSR0000SA0L1E&output_view=pct_1mth



The high volatility of the full measure CPI compared to core CPI is evident even in this short time-frame.

Note also, incidentally, that during the first 6 months of 2022, the full measure CPI averaged much more than the core CPI. In the last 6 months of the year, the opposite was true.

[mathematic]

12. You're still misrepresenting my point.

Wage growth moves slower than CPI. Compare it to core CPI

Large spikes in cpi vs core cpi are always going to hurt real wages because everybody's wages aren't adjusted monthly. Annual adjustments by contract or convention, switching jobs, automatic increases as a new hire after a certain time on the job are all common mechanisms for wage increases.

I didn't respond to you then because you were arguing against a ghost. I never said core cpi was a better way to measure real wages. In fact you can't read my statement and conclude that because I literally use "real wages" with the usual definition. I was making a prediction about real wages based on core inflation. It wouldn't even say it was a crazy prediction. The writing was on the wall about energy prices collapsing, which would result in lower cpi vs core cpi. It's not controversial to say that the price of labor moves more slowly than the price of energy. Your entire response to that post was just baffling to me since it seemed like it had nothing to do with mine and I would have let it lie if not for your reference here (knowingly or unknowingly) to that interaction.

[progree]

13. I don't remember your post or our discussion on this. Sorry

I didn't have you in mind at all when I wrote #10. Sorry that I offended.

(When I say CPI, I also include PCE in the below).

Wage growth moves slower than CPI. Compare it to core CPI

When energy and food inflation is increasing less than CPI, then CPI moves slower than core CPI.

Lately, core CPI has been increasing faster than CPI.

Like I said in #10 --

"I've seen a graph with both core CPI and full measure CPI together on the same graph. Basically, the core CPI looks like a smoothed out version of the full measure CPI, while the latter oscillates around the core CPI."

Nope, I won't be comparing wage growth to core CPI as far as what people are experiencing and have experienced, including myself.

Yes, I agree that for predicting in the future, like the Fed, I prefer core CPI.

What I object to are the posts that cherry pick whichever is lower for comparing to wage growth. (I'm not saying that's what you do, I don't think you do that).

[mahatmakanejeeves]

3. A Closely Watched Measure of Inflation Slowed in December

A Closely Watched Measure of Inflation Slowed in December

The Personal Consumption Expenditures price index climbed 5 percent from a year earlier, slower than the reading last month.

By Jeanna Smialek
Jan. 27, 2023, 8:35 a.m. ET

The Federal Reserve’s preferred inflation index climbed 5 percent in the year through December, a notable slowdown from November and a continuation of a six-month downward trend.

After stripping out food and fuel, the price index climbed 4.4 compared with a year earlier, in line with what economists in a Bloomberg survey had expected and a slowdown from 4.7 percent in November.

The overall picture is one of moderating inflation — providing some long-awaited relief for consumers — but which remains unusually rapid at more than twice the 2 percent rate the Fed aims for on average over time.

Central bankers are raising interest rates to make it more expensive to borrow money to make a major investment or finance a business expansion, hoping to cool demand enough that it drives price increases lower. Policymakers lifted their main policy rate from near-zero to more than 4.25 percent last year, and they are widely expected to raise it another quarter point in their decision on Feb. 1.

{snip}

[mahatmakanejeeves]

4. Key Fed inflation measure eased in December while consumer spending also declined

ECONOMY

Key Fed inflation measure eased in December while consumer spending also declined

PUBLISHED FRI, JAN 27 2023 * 8:57 AM EST * UPDATED 2 MIN AGO

Jeff Cox
@JEFF.COX.7528 https://facebook.com/jeff.cox.7528
@JEFFCOXCNBCCOM https://twitter.com/JeffCoxCNBCcom

Consumers spent less in December even as an inflation measure considered key by the Federal Reserve showed the pace of price increases easing, the Commerce Department reported Friday.

Personal consumption expenditures excluding food and energy increased 4.4% from a year ago, down from the 4.7% reading in November and in line with the Dow Jones estimate. That was the slowest annual rate of increase since October 2021. ... On a monthly basis, so-called core PCE increased 0.3%, also meeting estimates.

At the same time, consumer spending was even less than already-modest estimates, indicating that the economy slowed at the end of 2022 and contributing to expectations for a 2023 recession. ... Spending adjusted for inflation declined 0.2% on the month, worse than the 0.1% drop that Wall Street had been anticipating. That came despite a 0.2% increase in income, which met estimates.

The numbers come with Fed officials closely watching to measure the impact their rate increases have had on the economy. In line with other recent economic data, they show inflation persisting but at a slower pace than the level that had driven price increases in mid-2022 to their fastest pace in more than 40 years. ... However, the data also shows that consumer spending, which drives more than two-thirds of all U.S. economic activity, is waning. Adjusted for inflation, real consumer spending declined 0.3%.

{snip}

[BumRushDaShow]

6. I think the newest is now up

https://www.bea.gov/news/2023/personal-income-and-outlays-december-2022

Good morning and TGIF!

[mahatmakanejeeves]

7. Cool. Thanks. Good morning. NT

[Lonestarblue]

8. And yet the FED has said it will continue rate increases, most likely forcing a recession.

I’ve commented before that the FED’s only tool is interest rate changes, and they use that tool regardless of whether it’s the most effective one. I have much admiration for the economist Joseph Stiglitz because he focuses on common sense analyses on the whole economy rather than a few data points. Here’s an example from his article in today’s Guardian about the detrimental effect f raising interest rates.

“Worse, it is not even clear that there is any upside to this approach. In fact, raising interest rates could do more harm than good, by making it more expensive for firms to invest in solutions to the current supply constraints. The US Federal Reserve’s monetary-policy tightening has already curtailed housing construction, even though more supply is precisely what is needed to bring down one of the biggest sources of inflation: housing costs.”

https://www.theguardian.com/business/2023/jan/27/how-should-you-fight-inflation-spoiler-alert-not-with-interest-rate-rises

[Ford_Prefect]

9. So the MSM doom and gloom talking heads are Wrong? Imagine that?

Biden didn't bury us with stagflation???? Who'd have predicted that???

How could anyone have known????


Note: If you haven't noticed the sarcasm dripping with distain you haven't been paying attention.

[progree]

11. PCE inflation, monthly changes, last 5 months. PCE and Core PCE

https://www.bea.gov/news/2023/personal-income-and-outlays-december-2022

Aug Sep   Oct Nov   Dec
0.3   0.3   0.4   0.1   0.1 PCE
0.6   0.5   0.3   0.2   0.3 CORE PCE



P.S. I prefer to show all 12 months of the year, but don't know where the stats are -- I found these instructions and it looks like some spreadsheet work to get the monthly changes for all 12 months, but anyway

Google: "NIPA Table 2.3.4U"
Choose "National Data - Data Tools - Bureau of Economic Analysis
( https://apps.bea.gov/itable/?reqid=19&step=3&isuri=1&nipa_table_list=2014&categories=underlying )
Click on the "NIPA Tables" tab
Click on Section 2 - Personal Consumption Expenditures
Click on Table 2.3.4U

[mahatmakanejeeves]

14. Consumer Spending Fell 0.2% in December as Inflation Cooled

ECONOMY | U.S. ECONOMY

Consumer Spending Fell 0.2% in December as Inflation Cooled

Underlying inflation slowed to its slowest pace since October 2021

By Austen Hufford
https://twitter.com/austenhufford
[e-mail]
Updated Jan. 27, 2023 12:04 pm ET

U.S. households turned cautious at the end of last year, cutting spending during the holiday shopping season and increasing savings, adding to signs of an economic slowdown.

Consumer spending fell a seasonally adjusted 0.2% in December from the prior month, the Commerce Department said Friday, the second straight monthly drop following solid spending increases during several months last year. Adjusted for inflation, spending fell 0.3% last month.

{paywall}

[roamer65]

15. The price of Chinese cat toys is down!

Woo hoo!

[ck4829]

16. Kick

[mahatmakanejeeves]

17. It's the newest buzz word on Wall Street, so what exactly is supercore inflation?

It’s the newest buzz word on Wall Street, so what exactly is supercore inflation?

wsj.com
What is Supercore Inflation?
It’s the Fed’s new favorite inflation gauge, so what exactly is it and why is it important?

Link to tweet

MARKETS

What Is Supercore Inflation?

It’s the Fed’s new favorite inflation gauge, so what exactly is it and why is it important?

By Brian Whitton and Dion Rabouin
https://twitter.com/noslouch
[e-mail]
https://twitter.com/DionRabouin
Updated Jan. 31, 2023 3:05 pm ET

You may be familiar with the consumer price index, the most well-known measure of U.S. inflation. You may even know about core inflation, which strips out food and energy prices that tend to be volatile. Since November, the Fed has focused on an even narrower measure to guide interest-rate policy: supercore inflation. So what exactly is it?

Supercore inflation is currently around 4.1%

In the grid below you can see all of the segments that make up supercore and how prices have changed over the past three months at an annualized rate.

{Snip. It won't display properly.}

What is supercore?

The name is a nod to the Fed’s focus on a slimmer set of prices that remain stubbornly high. Supercore inflation comprises the price of services — things such as barbers, lawyers or plumbers — excluding energy and housing. ... It’s the Fed’s new favorite inflation gauge as it tries to diagnose the pace of inflation and the current and future health of the U.S. economy. ... Fed Chair Jerome Powell has said that it “may be the most important category for understanding the future evolution of core inflation.”

{snip}

The Fed focuses on inflation in services because those prices are more likely to be driven by the cost of labor, which the Fed can more easily control with interest rates. Higher rates tend to slow the economy and cause companies to slow hiring or begin layoffs. The price of goods, on the other hand, is more affected by global factors such as supply chain logistics. ... As the pace of overall inflation has slowed down, the Fed has shifted to focus on more complex and unusual measures such as “core services excluding housing” which is why it’s being referred to as supercore.

The measure is expected to affect the Fed’s decisions about rate increases, which decide the interest rates on credit cards, auto loans, small business loans and more. Higher interest rates matter to investors because it increases the cost of borrowing money and makes it harder for businesses to grow and consumers to spend. ... There is debate about whether using the supercore measure to set the Fed’s course holds merit. Some economists argue that the Fed’s path will cause an unnecessary recession.

{snip}

—Sam Goldfarb contributed to this article

Methodology

The rates of change in this piece are presented according to an analysis of Commerce Department data by The Wall Street Journal. For a given month, the Journal compared the index value to three months prior and calculated the annualized rate using a formula provided by the Federal Reserve Bank of Dallas.

The so-called “supercore” index is derived by removing the Housing index from the PCE Services excluding Energy index, also known as Core Services. We estimate Housing’s contribution to Core Services inflation using the Commerce’s Department’s nominal consumption data.