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Core PCE price index jumps MoM by most in 13 months on Non-Housing Services. Recreational Services blow out. Durable Goods continue 6-month trip out of deflation.
By Wolf Richter for WOLF STREET.
The inflation measure released today – the PCE price index favored by the Fed as yardstick for its inflation target – dished up another surprise.
While gasoline prices fell in February from January, and food prices were stable month-to-month after substantial increases in prior months, prices in core services jumped, driven by non-housing services, especially by the ongoing six-month-long red-hot spike in recreational services – the services that consumers want to buy.
Prices of durable goods stopped falling last year, and then started rising, initially driven by sharply rising used vehicle prices, after their historic plunge. I’ve been warning for months here that durable goods would no longer push down overall inflation readings.
These are retail prices of durable goods consumers purchased in February, well before any tariffs reached retail prices. It’s inflation pure and simple that has been creeping up for months, bouncing between various categories non-housing services and some goods.
The core PCE price index, which excludes food and energy items, accelerated to +0.37% (+4.5% annualized) in February from January, the worst increase in 13 months, and January was revised higher, according to data from the Bureau of Economic Analysis today (blue in the chart below).
The 3-month core PCE price index accelerated to +3.6% annualized, the worst increase since March 2024.
The 6-month core PCE price index (red) accelerated to +3.1% annualized, the biggest increase since June 2024.
The overall PCE price index rose by 0.33% (+4.0% annualized), just a hair below the upwardly revised increase in January (originally reported as 4.0% and revised up today to 4.1%). Both were the worst month-to-month increases since March 2024
The 3-month PCE price index accelerated to +3.9% in February, the worst month-to-month increase since March 2024, and January was revised higher (to +3.0% from 2.9%).
The low point of the three-month index was in July (+1.1% annualized), and it has been accelerating ever since.
The 6-month PCE price index accelerated to +3.1%, the worst increase since September 2023.
The core services PCE Price Index, which excludes energy services, accelerated in February to +0.35% (+3.6% annualized), driven by non-housing services, especially the ongoing red-hot surge in recreational services, and despite the deceleration in housing services (rent).
The 6-month core services PCE price index accelerated for the fifth month in a row to 3.7% annualized, the worst increase since June 2024. The low point was in September 2024.
The Fed started rate cuts at the low point. Looking back, we can see that inflation was carving out a low point in the period of June through September 2024. With the August CPI data, I started pointing at this issue.
Used vehicle prices started rising, non-housing services started rising, food prices started accelerating again. By the October CPI, it became loud and clear: “Overall CPI Accelerates for 4th Month, “Core” CPI for 3rd Month on Re-spiking Used Vehicle Prices & Rising Homeowner Costs,” I said in the headline.
But in September, the Fed embarked on its rate cuts with a monster cut right after inflation had bottomed out and started to re-accelerate. The Fed was frazzled by the labor market data – which turned out to have been a false alarm – while it thought inflation had been licked, which it wasn’t.
Durable goods prices emerged from deflation. The six-month PCE Price index for durable goods started heading higher in September last year, when it was still in deflation (negative), and it became less negative, driven by positive month-to-month readings in September, October, January, and February. A big driver was used vehicles, whose prices have been resurging.
Housing inflation (rent) is no longer the culprit. The PCE price index for housing, which is part of core services, decelerated to +0.28% (+3.4% annualized).
The six-month index decelerated to 3.8% annualized, the lowest since September 2021. This measure of housing inflation is now back in the pre-pandemic range.
Inflation blows out in recreational services. This is a broad category of services that consumers want to buy, including: Cable and satellite services, broadband, amusement parks, campgrounds, concerts, spectator sports, movies, theaters, gambling, video streaming, vet services, package tours, memberships, clubs, participant sports centers and clubs, museums, maintenance and repair of recreational and sports equipment, etc.
The month-to-month increases began in, you guessed it, September 2024, and then in October became hot, and in January and February red-hot, off-the chart (literally), with 14.5% and 12.6% annualized month to month increases.
This pushed the six-month increase to +7.0%, the third-worst in this entire inflation cycle, behind only January and February 2023. The low point had been, you guessed it, in August 2024 at 1.0%.
Of the remaining services categories, only transportation services, which includes airline tickets, booked a month-to-month decline in February:
- Transportation services (-2.5% annualized)
All other services booked hefty month-to-month increases:
- Healthcare services (+4.1% annualized)
- Insurance (+3.9% annualized)
- Food services index (+4.4% annualized)
- Non-energy utilities (+12.8% annualized)
- Financial Services (+6.1% annualized)
- Other services (+7.7% annualized).
On a year-over-year basis:
- Overall PCE price index (red): +2.5%, same as in January. The Fed’s target is 2.0%.
- Core PCE price index (blue): +2.8%, up from January (+2.7%)
- Core Services PCE price index (gold): +3.6%, up from January (+3.4%)
- Durable goods price index (green): -0.9%, less negative than in January (-1.2%)
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The post Inflation Galore Now: Fed Started Rate Cuts at the Low Point 6 Months Ago, just as Inflation Began to Resurge appeared first on Energy News Beat.
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