Personal income rose $50.5 billion, or 0.2%, on a monthly basis, according to the US Bureau of Economic Analysis. Disposable personal income increased $34.2 billion, or 0.2%. Personal consumption expenditures, on the other hand, rose $47.2 billion, or 0.1%.
The PCE price index increased 0.1%. Excluding food and energy, prices also rose 0.1%. The real retail price index increased 0.1% in August, while prices for goods increased less than 0.1%, and prices for services rose 0.2%. The rise in personal income in August reflected an increase in compensation, partially offsetting a decline in personal income receipts.
The $47.2 billion increase in PCE included a $54.8 billion increase in spending on services.
while spending on goods decreased by $7.6 billion. Housing and financial services contributed to the increase in spending on services.
while new vehicles were the largest contributor to the decline in goods.
Personal spending rose $48.3 billion, and personal savings reached $1.05 trillion, with a personal saving rate of 4.8 percent. The PCE price index rose 0.1 percent in August from the previous month. Goods prices fell 0.2 percent, while services prices rose 0.2 percent. Food prices increased 0.1 percent, while energy prices fell 0.8 percent. Excluding food and energy, the index also increased 0.1 percent.
On a year-over-year basis, the PCE price index rose 2.2 percent in August. Goods prices fell 0.9 percent, while services prices rose 3.7 percent. Food prices rose 1.1 percent, while energy prices fell 5.0 percent. Excluding food and energy, the index increased 2.7 percent from a year ago.
Updates on Personal Income and Expenditures
The 0.1% increase in real personal consumption expenditure reflected a smaller 0.1% increase in spending on goods and a 0.2% increase in spending on services. In goods, nondurable goods, especially pharmaceuticals, were the largest contributors. In services, leisure services, such as gambling, were the largest contributors.
Updates on personal income and expenditure
The current release presents the results of the annual update to the national economic accounts, with revisions to the estimates of income and expenditure since January 2019. The updated estimates include wage and salary data for the first quarter of 2024, with revisions to the data from April to July 2024. It shows the updated changes in personal income, GDP, personal spending, and saving as a share of GDP. The updated estimates were presented as part of the third estimate of GDP for the second quarter of 2024. Not surprisingly, such a decision-making process is inefficient, and has led to the volatility in bond yields that we have seen over the past few months.
The core CPI differs from the core CPI in that it measures only the goods and services targeted and consumed by individuals. Prices are weighted according to the total expenditure of each item, which provides important insights into consumer spending behavior. The CPI is released about 10 days in advance and tends to attract the most attention; it is the primary measure of inflation used by the Federal Reserve. Inflation is of great importance to currency valuation because rising prices prompt the central bank to raise interest rates in keeping with its mandate to contain inflation; consumer prices account for the majority of overall inflation. Inflation is of great importance to currency valuation because rising prices prompt the central bank to raise interest rates in keeping with its mandate to contain inflation;
PCE Price Index Data: May 2024
May’s CPI data didn’t surprise much. The figures showed prices were flat compared to April, after rising 0.3% the month before, and the annual increase slowed to 2.6% in May from 2.7% in April.
Last week, a senior Federal Reserve official made it clear that it was not time to cut interest rates, but that they could be raised if needed. Fed Governor Michelle Bowman also warned of upside risks to inflation, pointing to improving consumer and producer price indices and better data on personal consumption expenditures.
Inflation Warnings from Fed Governor Michelle Bowman
Bowman noted that supply constraints during Covid contributed to higher prices, but that aggregate demand was also supported by accommodative monetary and fiscal policies. She stressed that these policies strengthened household and corporate balance sheets, and contributed to very tight labor markets. Bowman blamed the delay in removing monetary easing in 2021 for the persistence of inflationary pressures. She also pointed to easing financial conditions and additional fiscal stimulus as possible factors behind the rise in inflation.
Inflation Challenges and Monetary Policy
One possible reason for the slowdown in inflation progress is the shelter effect (rent) on overall inflation, as record housing prices can lead to higher rents. While the Fed’s rate hike (5.25-5.50%) has helped slow the rise in goods prices, inflation in services remains elevated. Also, personal consumption expenditures data showed that disposable personal income rose 0.5% in May, while consumer spending increased 0.2%. These numbers indicate that there is ample purchasing power in the economy, raising questions about the urgency of lowering interest rates. The divergences in monetary policy at the FOMC raise questions about how to manage inflationary trends. There seems to be hope for a “consensus” among members, although disagreements may emerge publicly due to concerns about Chairman Powell’s future guidance.
Inflation Rates and Interest Rate Expectations
Inflation continues to slow on both sides of the Atlantic, paving the way for interest rate cuts by central banks. In the US, consumer spending inflation was in line with expectations, with modest monthly and annual increases. In Europe, inflation fell to a three-year low.
back to around 2%, partly due to a slowdown in the German economy. The European Central Bank is due to meet on September 12.
while the US Federal Reserve meets on September 17 and 18. The Bank of Canada is expected to announce its third interest rate cut this year.
which could lower the rate to 4.25%. In July, the personal consumption expenditures price index rose 0.2% on a monthly basis and 2.5% on an annual basis.
in line with market expectations. Inflation and the US and European economy
Core prices, excluding housing
rose just 0.1% in July. While other components of inflation eased, housing prices remained elevated, up 0.4% in July. The Bureau of Economic Analysis also reported that personal income rose 0.3%, beating estimates, while consumer spending increased 0.5%. However, the personal saving rate fell to 2.9%, the lowest since June 2022.
On a year-over-year basis, prices for goods were flat, while prices for services jumped 3.7%. Food prices rose 1.4%, and energy prices accelerated 1.9%. In the eurozone, inflation fell to 2.2% in August, the lowest in three years, down from 2.6% in July. The core rate also fell to 2.8%. The data suggests that a 0.25% interest rate cut by the European Central Bank is likely. Meanwhile, the Federal Reserve is awaiting August jobs data, which is expected to add 175,000 jobs, despite the unemployment rate trending higher.
