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January PCE of 2.4% is Consistent with Expectations

This morning, we got the January Personal Consumption Expenditures (PCE) report. This is the preferred inflation gauge of the Federal Reserve. The PCE was up .3% vs last month and 2.4% vs last year. The Core PCE, which excludes food and energy, was up .4% vs last month and 2.8% vs last year. All of these were consistent with expectations.

 

The report is a bit of a mix with continued declines in the yearly comparisons which you can see in the chart below. The monthly comparisons have started to reaccelerate. The headline PCE had seen monthly increases between 0.0% and 0.1% during the past three months. The Core PCE was in the 0.1% to 0.2% range. A 0.4% increase might not seem like much, but it annualizes to 4.9% which is almost 2.5x the target. It’s also a reversal from the past few months of lighter inflation numbers.

There were a couple of surprises in this report. Personal income was up 1% which beat the 0.3% forecast. Consumer spending, which has been running high for months, was down 0.1% which was below the estimate for positive 0.2%. There’s always some noise in the monthly numbers, but with income up and spending down, it’s possible that inflation is understated and that families are feeling more pricing pressure than the official numbers indicate. The chart below is the absolute value PCE which shows prices continuing to rise even if they’re doing so at a slower pace.

DKI has been saying for two years that rate cuts will come later than most market participants expect and that we won’t see 6 cuts (for a total of 1.5%) this year. No change in opinion.

 

IR@DeepKnowledgeInvesting.com if you have any questions.

 

Information contained in this report, and in each of its reports, is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied.  DKI makes no representation as to the completeness, timeliness, accuracy or soundness of the information and opinions contained therein or regarding any results that may be obtained from their use. The information and opinions contained in this report and in each of our reports and all other DKI Services shall not obligate DKI to provide updated or similar information in the future, except to the extent it is required by law to do so. 

 

The information we provide in this and in each of our reports, is publicly available. This report and each of our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion in this and in each of our reports are precisely that. Our opinions are subject to change, which DKI may not convey. DKI, affiliates of DKI or its principal or others associated with DKI may have, taken or sold, or may in the future take or sell positions in securities of companies about which we write, without disclosing any such transactions.

 

None of the information we provide or the opinions we express, including those in this report, or in any of our reports, are advice of any kind, including, without limitation, advice that investment in a company’s securities is prudent or suitable for any r investor. In making any investment decision, each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose. 

 

In no event shall DKI be liable, based on this or any of its reports, or on any information or opinions DKI expresses or provides for any losses or damages of any kind or nature including, without limitation, costs, liabilities, trading losses, expenses (including, without limitation, attorneys’ fees), direct, indirect, punitive, incidental, special or consequential damages.

 

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