U.S. September Core PCE Prices consistent with CPI, December Michigan CSI sees inflation expectations fall
September PCE prices at 0.3% overall, 0.2% ex food and energy are in line with expectations with the respective gains before rounding at 0.269% and 0.198%. December’s Michigan CSI has seen inflation expectations easing, which will provide some comfort to the Fed.
The PCE price data is consistent with September’s CPI if marginally slower before rounding. Yr/yr growth was 2.8% both overall and in the core rate, the former up from 2.7% and the latter down from 2.8%, both still significantly above the Fed’s 2.0% target. With annualized growth at 2.8% overall and 2.9% for the core in Q3 the picture does not appear to be slowing.
Personal income with a rise of 0.4% was slightly stronger than expected and matched the increase in wages and salaries. Personal spending at 0.3% was as expected after a subdued retail sales report. Services at 0.4% slightly exceeded retail sales but slowed slightly from July and August.
In real terms disposable income was up by 0.1% and personal spending unchanged. In Q3 however real disposable income rose by only 0.4% annualized, suggesting that a 2.7% annualized increase in real personal spending for Q3 will be difficult to sustain.
December’s preliminary Michigan CSI of 53.3 is up from 51.0 in November but still weak. Current conditions at 50.7 from 51.1 hit a fresh low but expectations picked up to 55.0 from 51.0.
Expectations appear to have been helped by lower inflation expectations, the 1-year at 4.1% from 4.5% and the 5-10 year view at 3.2% from 3.4%, the lowest since January in each case, suggesting tariff-led inflation is starting to fade.
