by Peter Schiff, Schiff Gold:
Energy prices have moderated and the price of some goods has dropped in recent months, but the cost of services continues to rise at a red-hot pace and is at the highest level since 1984.
As a result, the core personal consumption expenditures price (PCE) index rose by 4.6% year on year. This is yet another signal that the Federal Reserve is not anywhere close to winning the inflation fight.
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The core PCE is the Fed’s favorite inflation number because it understates the rise in prices the most. But even by this measure, the central bank is nowhere near the mythical 2% target.
The headlines trumpeted a “moderation” of the overall PCE with the monthly rate increasing by 0.3%. That was lower than the projected 0.5% rise.
LPL Financial chief economist Jeffery Roach told CNBC, “The inflation trend looks promising for investors. Inflation will likely be below 4% by the end of the year, giving the Federal Reserve some leeway to cut rates by the end of the year if the economy falls into recession.”
It’s difficult to figure out how he came to that conclusion because the headline number hides an unpleasant reality. Despite the sanguine headlines and mainstream assurances, there is no indication that price inflation is going to suddenly go away. I shouldn’t have to say this, but apparently, I do — that core PCE reading remains well above the Fed 2% target.
WolfStreet noted that core CPE is “at nose-bleed levels at well over twice the Fed’s target.”
And if you look at the recent trend, it doesn’t engender much optimism.
Before the most recent 4.6% rise, core PCE increased by 4.7% in January and 4.6% in December, so it has been basically unchanged for three months.
Month on month, core PCE has jumped up and down in the same range since 2021. So, despite the mainstream article that gives the impression prices are dropping based on the PCE, the inflationary cooling has stagnated and it continues to run more than 2% above the Fed target.
Meanwhile, service expenditures are at the highest level since 1984. Two-thirds of consumer spending is on services. The PCE index for services rose by 5.6%. in February, the same as the annual increase charted in January.