The Fed’s preferred inflation measure, PCE, showed headline inflation rose 0.2% in October, pushing the yearly rate from 2.1% to 2.3%, both as expected. Core inflation, which excludes food and energy prices, increased 0.3% in October and 2.8% year over year, up from 2.7%. These results were anticipated, as last year’s low numbers make progress on inflation more difficult.
Shelter costs are a key driver of inflation, rising 5% yearly, far above real-time estimates like CoreLogic’s 2%. Shelter alone accounts for 0.9% of the 2.8% core inflation. If shelter prices were adjusted to real-time data, core PCE inflation would be closer to 2.3% not the 2.8% that was released.
Consumer data showed that incomes rose 0.6% (twice expectations), spending increased 0.4%, which was slightly hotter than what the market was expecting and the savings rate improved from 4.1% to 4.4%. We saw the savings rate increase because incomes rose by a faster pace than spending. Progress on inflation is expected to improve with January’s data in February.
As inflation cools, it draws more buyers into the bond markets pushing bond pricing higher and long term mortgage rates lower.
Source : https://bit.ly/3Vq16rc
By: Jon Iacono