Hmmm: PCE Inflation Accelerated in January - While Consumer Spending Dropped

From the preceding month, the PCE price index for January increased 0.3 percent (table 5). Prices for services increased 0.6 percent and prices for goods decreased 0.2 percent. Food prices increased 0.5 percent and energy prices decreased 1.4 percent. Excluding food and energy, the PCE price index increased 0.4 percent. Detailed monthly PCE price indexes can be found on Table 2.4.4U. 

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From the same month one year ago, the PCE price index for January increased 2.4 percent (table 7). Prices for services increased 3.9 percent and prices for goods decreased 0.5 percent. Food prices increased 1.4 percent and energy prices decreased 4.9 percent. Excluding food and energy, the PCE price index increased 2.8 percent from one year ago.

The 0.1 percent decrease in real PCE in January reflected a decrease of 1.1 percent in spending on goods and an increase of 0.4 percent in spending on services (table 4). Within goods, decreases were widespread, led by motor vehicles and parts (mainly new light trucks). Within services, the largest contributor to the increase was housing and utilities (led by utilities).

Ed Morrissey

This is the highest month-on-month increase in PCE Index inflation since October. It had been mostly flat ever since, although it did bump up slightly in December. Having inflation accelerate while consumer spending declines is not a good sign for the economy. Having most of the increase in PCE activity centered on housing and utilities is also not a good sign. 

The Fed uses this metric as its best indicator of policy on rate changes. This combination will likely have them stalling on a change in either direction. 

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