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11 01 2016 | by Victor Xing | Economics

September PCE: goods and energy inflation lead the index

September PCE

September PCE (Personal Consumption Expenditures) rose 1.25% YoY (vs. Fed’s 2.0% objective), a level not seen since 4Q 2014 as higher energy and goods prices buoy the headline index.  Services inflation also rose from the post-2014 level to reach 2.37% YoY.  This corroborates with the rise of Owner Equivalent Rent and Medical Care inflation in the Consumer Price Index, which rose 3.38% (highest since May 2007) and 4.89% YoY (highest since Jan 2008) respectively in September.

The rise in inflation will be welcomed by senior policymakers, as Chair Yellen outlined on October 14th on the benefits of running a “high pressure economy”:

If we assume that hysteresis is in fact present to some degree after deep recessions, the natural next question is to ask whether it might be possible to reverse these adverse supply-side effects by temporarily running a “high-pressure economy,” with robust aggregate demand and a tight labor market.

Breaking down the September PCE

  • Headline PCE: 1.25% YoY vs. 1.2% survey and 1.0% prior
  • Core PCE: 1.70% YoY vs. 1.73% prior
  • Services: 2.37% YoY vs. 2.35% prior
  • Energy goods and services: -3.47% YoY vs. -9.96% prior
  • Durable goods: -2.62% YoY vs. -2.04% prior
  • Goods: -1.08% YoY vs. -1.76% prior
September PCE
September PCE: YoY changes

In comparison, the September CPI saw similar gains in energy, and the aforementioned OER also helped lift the broader index:

  • Headline CPI at 1.48% YoY vs. 1.09% prior
  • Core CPI at 2.21% YoY vs. 2.30% prior
  • OER at 3.38% YoY vs. 3.31% prior
  • Medical care at 4.89% YoY vs. 4.90% prior
  • Apparel at -0.06% YoY vs. 0.20% prior
  • New vehicles at -0.05% YoY vs. flat prior
  • Energy at -2.87% YoY vs. -9.24% prior
September PCE
September CPI: YoY changes

Overall, inflation is trending higher under firmer energy (which had re-weakened recently on OPEC headlines) and rising healthcare and housing costs.  The on-going ACA premium changes will need to be monitored closely (which may dampen policyholders’ desire to seek care), and prolonged asset price inflation is pushing up rental cost to unintentionally constrain discretionary spending.


Next article10 07 2016 | by Victor Xing | Economics

September Payrolls: signs of tighter labor market slack