PCE Inflation Analysis (with Katie Greifeld)

Core PCE inflation is being driven by idiosyncratic factors like airfares and portfolio management, not a wage-price spiral. Headline inflation likely peaked due to falling energy prices, but the disinflationary road will be long. The Fed should be cautious about hiking prematurely.

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PCE Inflation Analysis (with Katie Greifeld)

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Stuart Paul expects headline inflation to turn deflationary month-on-month and believes the Fed should be cautious about hiking, implying lower yields in the near term.

PCE data shows inflation rose at fastest pace in over three years, headline 4.1%, core 3.4%.

Katie Greifeld
Stuart Paul

Core PCE is being buoyed by idiosyncratic factors like airfares, portfolio management services, and insurance products, not a wage-price spiral. The Fed should sit on their hands and be cautious about hiking prematurely.

Headline inflation is expected to turn deflationary month-on-month when June data arrives, due to falling global energy prices. Labor-intensive services prices are not accelerating.
Could we be seeing the peak in inflation right now?

Katie Greifeld
Stuart Paul

We are seeing the peak in inflation, but it will be a long disinflationary road. Labor income growth is strong at ~5% annualized, sustaining spending, but households are price-sensitive and need goods prices down to increase volumes.

Households are stretched with a savings rate of just 3%. Sustained labor income growth and a healthy job market are needed. If the job market cracks, risks become two-sided for the Fed.

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