The deluge of new monthly data starts tomorrow. Today there’s no significant data, so let me follow up on a point from Friday’s personal income and spending report.

I never look to see what others are saying before I finish my own analysis, because I want to be as unbiased as possible. After that I may check other analyses, and usually they aren’t too different (except for the perma-DOOOMers, who always gotta perma-DOOOM).

Friday was different, because almost everybody else who looked at the personal income and spending report focused on a perceived renewed inflationary pulse. So let me explain in a couple of graphs why I arrived at a different perspective.

A good example of the concern in other quarters was this take by Harvard Econ Prof. Jason Furman:

Core PCE inflation came in a little above the already high expectations in Feb. The pattern is the opposite of what you want to see--the shorter the window the higher the annualized rate (and still high at 12 months):

1 month: 4.5% 3 months: 3.6% 6 months: 3.1% 12 months: 2.8%

And he supplied in support the following graph:

The three month change in particular looks very worrisome.

But notice something else in the graph. Specifically, notice that there was a similar - even bigger - spike in the 3 month average at the beginning of 2024. And in fact there were lots of inflationary concerns expressed back then as well.

And then they completely faded away in the spring and summer.

The reason is apparent when we look at the monthly readings starting back in October 2023, shown in the below graph for both headline (light blue) and core (dark blue) PCE inflation:

(Click on image to enlarge)

There was a big spike in the monthly readings from January through April of last year. Then it simply stopped.

Which has the following effect on the YoY% numbers:

(Click on image to enlarge)

At its low point in the past year, YoY core PCE inflation was 2.63%. As of Friday it was 2.79%. In other words, an increase of all of 0.16%.

So what we have is a repeat of the monthly spike we saw 12 months ago, that has had a very small effect on the YoY comparisons. And is very much in line with the likely unresolved seasonality we have seen in a number of indicators since COVID, including weekly jobless claims and personal spending.

If the monthly number don’t back off in a month or two, and the YoY comparisons get significantly higher than they were 12 months ago, I’ll be convinced that there is a real problem. Unless and until that happens, I am somewhat skeptical.

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