More Evidence That Cooling Price Inflation Was Transitory

By Mike Maharrey, Money Metals Exchange

If the hotter-than-expected March CPI data wasn’t enough to convince you, there is more evidence that the “cooling inflation” we saw late last year was transitory.

The media tends to focus on the Consumer Price Index but the Federal Reserve’s favorite inflation measure is the Personal Consumption Expenditures price index (PCE). The central bankers at the Fed like this index because it understates price inflation even more than the CPI. 

But it isn’t understating price inflation enough. 

The PCE data for March came out Friday – hotter than expected.

You might be picking up on a theme here.

The core PCE (stripping out more volatile food and energy prices) rose by 3.9 percent on an annualized basis in March.  That is nearly double the mythical 2 percent target.

Year-on-year, core PCE was up 2.8 percent.

More concerning is the fact that the three-month rolling average for core PCE jumped by 2.9 percent, the highest since September.

On a monthly basis, PCE rose by 0.8 percent.

Service prices are driving the surge. The core services PCE price index jumped by 4.9 percent annualized In March. As WolfStreet notes, “Core Services PCE price index, which excludes energy services, has been hot and is getting hotter. This is where inflation is entrenched, and where the majority of consumer spending takes place.”

Housing PCE also surged, rising 5.4 percent annualized.

Prices in five of the seven PCE categories accelerated in March on a 6-month basis. 

• Healthcare: +3.5% 

• Transportation services: +5.4%

• Financial services & insurance: +6.0%

• Non-energy utilities: +5.3% 

• Other core services: +3.8% (This includes broadband service, cell phone services, household maintenance, moving and storage, education, legal and tax services, personal care services, etc.)

The only categories that charted falling prices were recreation services and food services.

Looking at the trend, WolfStreet determined, “The acceleration of inflation began happening in late 2023 and took off in leaps in 2024.”

“It will take a while for these movements to dominate the year-over-year readings, which is why we look at monthly and three- or six-month readings because they give us a better feel of the current inflation trends. But with a lag, they will make their way into the year-over-year readings.”

The bottom line is the death of inflation was greatly exaggerated. Some might call it transitory.

Meanwhile, economic growth slowed far more than expected in the first quarter.

There is a word for accelerating inflation and decelerating economic growth – stagflation.