Editor's note: This article was originally published on October 1, 2021, by Menzie Chinn here.
A CNN headline notes “A key measure of inflation surged to a new 30-year high”, with that key inflation measure being the year-on-year (y/y) personal consumption expenditure (PCE) inflation, very similar to a headline a month ago. But in any case, by focusing on the y/y rate, they missed the main message In today’s release — that month-on-month (m/m) annualized PCE inflation was down from March peak, from 7% to 4% (and roughly the same as in July). Moreover, the core counterpart was also down from the April peak, from 7.7% to 4.1% (3.6% y/y hitting the Bloomberg consensus on the nose, and a little higher than m/m consensus.)
This personal income and expenditures release rounds out the inflation measures for August, so we have the following:
Figure 1: Month-on-month annualized inflation from CPI-all urban (blue), from personal consumption expenditure (PCE) deflator (black), chained CPI (brown), sticky price CPI (green), and 16% trimmed mean CPI (red). Chained CPI inflation seasonally adjusted by author. Source: BLS, Atlanta Fed, Cleveland Fed, via FRED, and author’s calculations.
The general discussion stressing y/y changes is understandable, but frustrating as it really tells almost as much about the past as the present, in the current context.
What about core measures? The core CPI inflation rate was also sharply down, as shown in Figure 2 (no trimmed core shown).
Figure 2: Month-on-month annualized inflation from CPI-all urban (blue), from personal consumption expenditure (PCE) deflator (black), chained CPI (brown), and sticky price CPI (green). Chained CPI inflation seasonally adjusted by author. Source: BLS, Atlanta Fed, Cleveland Fed, via FRED, NBER, and author’s calculations.
Looking to components of the PCE deflator, goods inflation is up (0.6% vs. 0.4% m/m) while services is inflation is flat at 0.4% (m/m).
What does the core PCE price level look like relative to forecasts? Figure 3 depicts on a log scale the reported series, and forecasts.
Figure 3: Core personal consumption expenditure deflator as reported (black line), CBO (blue line), Survey of Professional Forecasters (green line), FT-IGM (tan large square), FT-IGM, and 80%ile band (tan +), 2012=100, all on log scale. NBER defined recession dates shaded gray. Source: BEA via FRED, Philadelphia Fed SPF (August), and FT-IGM survey (September), CBO Economic Outlook (July), NBER, and author’s calculations.
If the core PCE deflator rises at 0.13% m/m (1.6% annualized) for the remainder of the year, then we’ll hit the IGM/FT median survey level.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.