Today's PCE release puts us in mind of the schoolkids song set to the tune 'Oh come all ye faithful: "why are we waiting, we are suffocating".
For most intents and purposes inflation is now running close to 2% per annum, or even slightly below once you account for the big lag from lower rents to the shelter index in the PCE or CPI see figures 2-5. Looking at our preferred version of a Taylor Rule suggests that the appropriate level of interest rates is already just below 4%, which is where the market currently prices the Fed Funds rate at the end of 2024.
The Core PCE price index grew at 2.9% on the year and 2.1% on a 6 month by 6 month annualised rate.
Core PCE less shelter prices increased by 1.6% and 1.2% on the Year and on a 6 month annualised basis respectively.
Services less shelter grew at 2.1% on a 6 month annualised rate. The PMI Services output prices suggests that there could be more deflation yet to come.
Housing cost pressures have been falling relatively slowly (currently at 6.4%), however more timely data such as the Zillow observed rent index suggests that the substantial housing component of PCE inflation will continue to come down.
