Core PCE inflation well above target for the 5th month in a row. But, the situation less concerning than it looks (at least for the Fed) but some clearly transitory tariffs & imputed stuff. Annual rates: 1 month: 2.8% 3 months: 2.9% 6 months: 2.5% 12 months: 2.9%
Here are all the inflation numbers.
And here is market-based core PCE which was tame the last two months. One difference: overall PCE includes imputed portfolio management fees. They were up at a 26% annual rate in August (14% rate YTD) because of the rising stock market. These don't show up in market-based PCE.
Overall inflation and core still moving sideways at about 3%. You don't want to be too sanguine in a situation like that but if take into account the issues with imputed and transitory tariffs can convince yourself that underlying inflation has fallen to 2.5%, maybe a bit below.
Meanwhile consumers are back to spending like crazy. Earlier this year it looked like consumers might finally be giving in but data revisions and additional months of data have changed that picture dramatically. And Jun, Jul & Aug matter a lot for Q3 GDP. Which will be strong.
Overall, despite the headline, I would say this report was mildly reassuring about inflation and confirmed what we thought from retail sales about the strength of consumer spending.
@jasonfurman Consumer spending default interpretation is strength, but anecdotally I sense many outside the 1% are spending despite themselves--getting less at now-higher price levels--and don't feel good about it. Also still some tariff front-loading going on, as price pass-thru is gradual.
@jasonfurman more deflation maybe
