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PCE Inflation Year-Over-Year

Today the BEA released Personal Consumption Expenditures (PCE) price inflation for November.

The BEA still needs to catch up from the lack of data collection due to the government shutdown.

PCE Year-Over-Year Details

• PCE: 2.8 percent
• Core PCE: 2.8 percent
• PCE Goods: 1.4 percent
• PCE Services: 3.4 percent

PCE Month-Over-Month

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PCE Month-Over-Month Details

• PCE: 0.2 percent
• Core PCE: 0.2 percent
• PCE Goods: 0.2 percent
• PCE Services: 0.2 percent

Those are relatively tame numbers. However, the annualized rates are still over the Fed’s 2.0 percent target.

Looking Ahead

Looking ahead the Fed has a huge problem as shown in the lead chart.

I expect the trend in PCE goods to continue because of tariffs.

More importantly, I expect health care expenses to jump ~8 to 10 percent in January, not counting the Affordable Care Act (ACA) commonly known as Obamacare.

Health care is ~17 percent of the PCE. Unlike the BLS, the BEA does not publish monthly weights.

If my guess is accurate, then year-over-year PCE inflation is poised to surge 1.7 percentage points (not counting ACA).

Counting ACA I expect a 2.0 percentage point surge in PCE Services due to the jump in health care premiums, most of it in January.

Fed Projections

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Fed PCE Projections

• PCE: 2.4 percent, down from 2.6 percent in September
• Core PCE 2.5 percent (healthcare is a part), down from 2.6 percent in September.

The Fed sure thinks I am wrong. And maybe I am since no one else seems to agree with my projections.

Expect a Big Divergence This Year Between CPI and PCE Inflation

Yesterday, I commented Expect a Big Divergence This Year Between CPI and PCE Inflation

Rent and Healthcare go different ways in 2026. Plus there are huge timing issues.

Year-over-year discrepancies between the CPI and PCE rate to be huge.

We will find out within a month whether this view is accurate.

If we do have the 1.5 to 2.2 percentage point surge in PCE due to health care, I fail to see how the Fed comes close to its year-over-year targets unless we have a huge demand collapse due to layoffs and recession.

That’s possible. But gold and commodities sure look more like stagflation.

We will see, mostly in January with some follow-through on corporate health plans in Q1, if the surge view is correct.

Click previous link for details and discussion.

Regarding the stagflation theory, please see Might the Next Interest Rate Move by the Fed Be a Hike?

It’s time to discuss the real possibility of a renewed surge in inflation.

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