Fed's Preferred Inflation Gauges Rose in January

Personal income up six tenths of a percent in January. That is after a two tenths gain, the initial release at least, in the month of December. Personal spending up 1.8 percent. That's better than the 1.4 percent expected. The PCE numbers, here's what you care about, the inflation numbers on a month-over-month basis, up six tenths of a percent, bigger than expected, and much bigger than the 0.

1 percent that we saw in December. The year-over-year number for the headline is 5.4 percent. We were at 5 percent, so we bounced the wrong direction. The core up six tenths, that is double. Well, that is, now here are the revisions. That is two ticks higher than what it was in December.

It puts the year-over-year at 4.7 percent after 4.6 percent. So inflation is stronger. Personal income is not as stronger than it was in December. Not as strong as expected, and personal spending is up 1.8 percent.

So Americans are still out there spending. I'll try to dive into the details. And, John, I bet you have some movement in the market. I mean, you can guess where it is. I think everyone listening can guess where it is. Equalities are down on the S&P by just a little more than 1 percent. That's the session low.

In the bond market, yields up at a front end by five basis points. Four, 75. That's the highest level. On a closing basis that we will have seen since 2007, on a 10-year at five basis points to $3.93. So, Tom, it yields up, stocks down, upside surprise again on inflation data. That is not what we wanted to see.

I'm trying to impress Eulerian here. I'm going to do the math in my head here. But on the core deflator, the survey with previous statistic was 4.35 percent. And the data with the revision is 4.65 percent. 4.

35, John, up to a reality of 4.65. To me, that's a demonstrable move. So, I get that it's old news, but Mike, I've got to ask it. If the Fed had the January data on February 1, would that news conference, that meeting, have been much different? I suspect it would have been, if they'd especially seen the strength in the jobs report, which came out two days after their meeting. And then if they knew where inflation was going, they might not have done 25, they might have gone with the master bullet camp and done 50 again if it had come out that way. Let me give you a couple more numbers here that matter.

A lot of talk about people going into debt to keep this spending up. But the savings rate rises to 4.7 percent from 4.6 percent. The second consecutive increase. So, it looks like people are still saving something out there instead of just buying everything on credit. What does it say to nominal GDP? What does it say to the animal spirit that companies have to adapt to? I mean, inflation can be good for companies too, because revenue comes in better, right? Yeah, absolutely for companies.

As long as they're making it on the margins and raising prices faster than their expenses, then that helps them. That was one of the foundations of the stock market for years until we got into this low inflation environment. And that's one reason it's been harder for companies to keep up the kind of growth that they used to have. So, Mike, I got an email moments ago in response to this economic data and it said this should be called the core inflator. Now, can you tell our audience your best place to do this? What is the greatest distinction between the CPI data we had a week or so ago and say the PCE core deflator? What is all that? Well, in the PCE, you can just call it an index, but basically they use the PCE numbers to deflate to adjust for inflation the GDP numbers, which is why they call it a deflator. It could be easily called, in this case, an inflator this month. But the biggest differences are in medical care.

The CPI is what you pay for medical care, and the PCE takes in what insurance pays as well. And then in housing, housing is a much smaller component of the PCE than it is of CPI. So that does matter. I'm looking here to see if we have an update on the number that does matter, which is the core services ex-housing. And let me just type this number in here and see what we got. It hasn't updated yet our numbers, but we'll continue to look for that and we'll talk about it on your show, John. One thing I can tell you is that wages were up a huge amount in January.

Now, this is not totally unexpected because it's when everybody gets their raises, but they were up 9-tenths of 8%, which follows a 4-tenths gain. And then the one that everybody's going to want to see here, or we're going to want to see is social security, because of the big increase in the COLA this year. Social security payments went up 9%. So that's going to be one of those graphs that sort of breaks the graph like we have with jobless clays during the pandemic. So that's where a lot of this increase in incomes comes from. We're lower than people thought they would be.

Bloomberg