U.S. Core PCE Inflation is Still Not Coming Down
In the United States, Core PCE Inflation is still 5.0% after a recent reversal in disinflation. This measure is followed by the Fed and excludes volatile food and energy inflation. It has remained elevated on an annualized quarterly basis, with a 1-year percent change of 5.0%, and a quarter-over-quarter annualized rate of 4.67%, well above the Fed’s goal of 2% inflation. Below (in blue) we see that Core PCE ticked back up last quarter.
Even on a month-over-month basis, its annualized rate is 4.56%.
An alternative measure is the so-called “Supercore” inflation measure also known as Core CPI Services Less Housing. Fed Chair Powell focuses on this measure because it largely captures wage prices, which historically have been linked to inflation expectations. Supercore inflation is also still above 5%, but the most recent 1-month annualized level is 1.32%, which is a good sign. While one month is arguably not sufficient to predict the annual trend, using a slightly larger window of the past three months, we get a 4.04% annualized rate for this measure, showing the trend is moving down, but slowly.
There are some green shoots in the Fed’s disinflation fight. Today’s payroll report showed weekly hours down to 34.4 vs. the 2021 high of 35 hours. However, other costs remain elevated, such as Owners' Equivalent Rents, which are currently at a whopping 8.1% year over year. The timelier Zillow Residential Observed Rent Index is not presenting a much rosier picture with a year-over-year change of 5.26%, and a month-over-month annualized rate of 7%.
The next important measure of inflation will be the June 13 release of CPI, which takes place on the first day of the Fed’s June FOMC meeting. Currently, the market predicts the Fed will wait and see how the effects of the fastest policy rate increase in a generation trickle through to the economy, and depending on how June data comes out, may raise in July.
Bloomberg US Interest Rate Probabilities:
The information presented here is for informational purposes only and is not to be construed as an offer to sell, or the solicitation of an offer to buy securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. Hyperlinks may be included in this message that provides direct access to other internet resources, including websites. While we believe these links are to reliable sources, Knowledge Leaders Capital (“KLC”) has no control over the accuracy or content of information contained on these sites. Although we make every effort to ensure such links are accurate, up-to-date, and relevant, we have no control over pages maintained by external providers. The views expressed by these external providers on their own web pages or on external sites they link to are not necessarily those of Knowledge Leaders Capital.
The information provided on this blog is for illustrative or example purposes only and should not be construed as KLC’s opinion or investment outlook. As of the most recent quarter-end, the named companies may have been held by KLC. For full information including additional policies and full disclosures, please visit our website: KnowledgeLeadersCapital.com.
Any reference to Index performance does not represent the performance of any investment product offered by Knowledge Leaders Capital, LLC. An investor cannot invest directly in an index. The performance of the client account may vary from the Index performance. Index returns shown are not reflective of actual investor performance nor do they reflect fees and expenses applicable to investing.
Companies are selected for “Spotlights” based on high levels of innovation activities in their respective industries and illustrate innovation being employed across all sectors and geographies. Spotlight selection is separate from stock selection by the investment team. Spotlights are not necessarily representative of investment opportunities and can be selected regardless of investment performance or inclusion as a KLC holding.
A message from Advisor Perspectives and VettaFi: To learn more on this and other topics, check out our full schedule of upcoming CE-approved virtual events.