Inflation Showing The Slightest Bit Of Life In PCE Index

Inflation is showing the slightest bit of life yet probably more than enough to assure a rate hike at this month's FOMC. The core PCE price index, which is the inflation gauge FOMC members most closely watch, rose an as-expected 0.2 percent in October with September revised 1 tenth higher and now also at 0.2 percent. October's year-on-year rate also made expectations at 1.4 percent with the prior month again revised 1 tenth higher and also at 1.4 percent. These rates are far from overheating but the forward direction, however glacial, is favorable for policy makers who are trying to push inflation gradually higher.

Other readings in the report are mixed with personal income getting a special boost from interest income and rising 0.4 percent which is 1 tenth above expectations and actually at the high estimate. Yet the wages & salaries component for income, which is key, is up only 0.3 percent which is soft and down 2 tenths from September. Spending is also soft, up 0.3 percent as expected and reflecting a slight downtick in durable goods as vehicle sales in October, though strong, couldn't match September's hurricane-replacement spike.

The savings rate remains low though it did rise 2 tenths to 3.2 percent. In comparison to employment or the sparks appearing in the factory and housing sectors, this report offers a more subdued view of the economy, much like yesterday's Beige Book where modest-to-moderate was the theme. For Fed policy, spending and income don't point to any urgency for a rate hike but the high level of employment does as it threatens, at least in theory, to ignite a burst of wage-push inflation.

Recent History Of This Indicator:
Income and especially spending both rose in September but failed to give much lift to the Federal Reserve's core PCE price index and much of the same is expected for October. Personal income is seen rising 0.3 percent in October vs a 0.4 percent gain in September while consumer spending is expected to slow to 0.3 percent vs September's post-hurricane auto surge of 1.0 percent. The PCE price index is expected to rise only 0.1 percent for a year-on-year rate of 1.5 percent with the core PCE price index, which excludes both food and energy, seen up 0.2 percent for a yearly rate of only 1.4 percent.