Inflation Remains Stubbornly High, but Incomes and Spending Data Stay Solid
2025.02.03 05:50
Personal Consumption Expenditures minus food and energy () increased 0.2% in December, and 2.8% over the last 12 months. The Fed’s preferred indicator on inflation has now remained stubbornly in the 2.7% – 2.8% range for the last 7 months. Well above the Fed’s 2% target.
Headline increased 0.3% in December and 2.6% over the last 12 months. With the rising cost of energy, PCE inflation growth has accelerated for the 3rd straight month now.
rose 0.4% in December, and 5.3% over the last 12 months.
Personal incomes after adjusting for inflation have grown for the 8th straight month and 2.7% over the last 12 months. It’s going to take a while of wage gains outpacing inflation before consumers can really catch up with the inflation spike of the last few years. But its a positive sign nonetheless.
rose 0.7% in December and 5.7% over the last 12 months. Total (EPA:) spending is now about 38% above the pre-COVID peak.
Spending on services grew 0.6% in December and 6.7% over the last 12 months…
While spending on goods rose 0.9% in December and 3.5% over the last 12 months.
Personal spending adjusted for inflation (or real spending) grew 0.5% in December and 3.2% over the last 12 months. Inflation-adjusted consumer spending is now 15% above the pre-COVID peak.
Inflation and personal incomes were in line with expectation, while personal spending exceeded expectations. Personal spending accounts for roughly 70% of GDP, so these results certainly validate the GDP data we got yesterday, that showed consumers are still spending.
Inflation remains stubbornly high, while the economy isn’t showing many signs that the Fed’s current interest rate policy is restrictive enough. I don’t see anyway they can lower rates anytime soon. But Powell didn’t mention anything about raising rates again, only holding rates where they are for longer. This inflation fight is far from over.
