Fed’s Favorite Inflation Indicator Jumps To New 40-Year High, Savings Rate Plunges

The Fed’s favorite inflation indicator – PCE Deflator – was expected to accelerate in June and both the headline and core increased significantly (+6.8% YoY and +4.8% YoY respectively) – both higher than expected. The headline print is the highest since 1982.

Source: Bloomberg

With both the headline and core inflation signals re-accelerating, it appears the ‘peak inflation’ narrative has busted once again.

The ‘inflation’ indicator has supported nominal personal spending (even as incomes fail to keep pace – with soaring revolving credit signaling Americans relying on credit cards to get by). Nominal spending rose 1.1% MoM (slightly better than expected) while incomes rose only 0.6% MoM…

Source: Bloomberg

On a nominal year-over-year basis, incomes grew at 5.7% while spending (again this is nominal) rose 8.4%…

Source: Bloomberg

Real personal spending managed a measly increase of 0.1% MoM in June, which leaves  real spending up just 1.6% YoY…

Source: Bloomberg

On the income side, both private and government wages saw growth slow in June .Private wages rose 11.2%, down from 11.9% in May and lowest since March 2021, while Government wages rose 4.8%, down from 5.4% and the lowest since Mar 2021

Finally, the savings rate tumbled to just 5.1% – the lowest since August 2009…

Source: Bloomberg

No, the fact that Americans are borrowing more and saving less is not an indication of confidence – it’s an indication of deep-seated stress – which helps explain the record low in consumer confidence.