USD Dips and Recovers After Mixed PCE Inflation Numbers
Inflation has been slowing everywhere, giving central bankers who want to keep interest rates high no place to hide, since this was the reasoning behind the excessive policy tightening in the last two years. So, all attention was on the PCE inflation report today, which did tilt on the soft side, especially the core YoY number, but the headline YoY number remained unchanged, while the core monthly number came in higher instead. The PCE report has gained importance in recent years, because it is the Fed’s favored measure of inflation and provides additional indicators of consumer health.
US December PCE Core Inflation Report
PCE Core Inflation (Year-over-Year):
- December: 2.9% (indicated as a 3 point decline from the previous information where it was 3.2% in November)
PCE Core Inflation (Month-over-Month):
- December: +0.2%
- Expected: +0.2%
- Previous (November): +0.1%
Headline PCE Inflation (Year-over-Year):
- December: 2.6%
- Expected: 2.6%
- Previous: 2.6%
PCE Deflator (Month-over-Month):
- December: +0.2%
- Expected: +0.2%
- Previous: -0.1%
Consumer Spending and Income (December):
- Personal Income: +0.3%
- Expected: +0.3%
- Previous (November): +0.4%
- Personal Spending: +0.7%
- Expected: +0.4%
- Previous: +0.2% (revised to +0.4%)
- Real Personal Spending: +0.5%
- Previous: +0.5%
Additional Insights:
- Goods prices: -0.2% month-over-month
- Services prices: +0.3% month-over-month
- Real personal spending is up 3.2% year-over-year.
- Services inflation: 3.9% year-over-year vs. 4.1% prior.
Yesterday’s GDP report was pretty strong, however, the USD took a beating after the headline inflation rate was lower than expected in the statistics and it sparked widespread conjecture about a lower headline PCE inflation for December. However, the headline number remained unchanged at 2.6%, instead, it was the core PCE number that came in the soft side.
On the other hand, the PCE services other than energy and housing which the Federal Reserve pays special attention to, jumped 0.3% in December on a monthly basis, up from 0.1% in November, which is assisting raise the USD after a 20 pip dive initially on the soft YoY headline. Treasury rates rose to session highs in the aftermath, with 10-year bond rates up by 5 basis points after the announcement. Although, the three-month and six-month annualized core and headline PCE are now both below the Fed’s objective. by the way, US December pending home sales were just released, showing a +8.3% increase vs. +1.5% projected, so that should aid the USD as well.
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