Fed’s Favorite Lowball Inflation Gauge is Red-Hot, Not Seen in Decades, Even Without the “Base Effect”
The majestic inflation overshoot has arrived.
The Fed’s favorite inflation measure, generally the lowest inflation measure the US government provides — tracking a lot lower than even the Consumer Price Index which already understates actual inflation — and therefore our lowest lowball inflation measure, and therefore the Fed’s favorite inflation measure, was released this morning, and it was a doozie, despite being the most understated inflation measure the US has so far come up with.
The Personal Consumption Expenditures Price index without food and energy, the “core PCE” index, jumped by 0.7% in April from March, after having jumped by 0.4% in March from February, according to the Bureau of Economic Analysis today. Those two months combine into an annualized core PCE inflation rate of 6.4%, meaning that if price-increases continue for 12 months at the pace of the past two months, then the annual inflation would be 6.4% as measured by the lowest lowball measure the US has.
This was the highest two-months annualized rate since 1985. And it shows to what extent inflation has suddenly heated up in March and April.
Over the past three months – so April, March, and February – the annualized increase of core PCE inflation was 4.9%, the highest since 1990.
The annualized PCE index eliminates the legitimate issue of the “Base Effect” that is now getting trotted out to brush off the inflation data (I discussed the Base Effect in early April to prepare for what would be coming).
The Base Effect applies only to year-over-year comparisons. In March last year, the core PCE price index dipped by 0.1% from February, and in April it dipped by 0.4% from March. So comparing today’s PCE index to that dip in April (the lower “base”) would include the Base Effect.
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