Core PCE inflation came in at +0.8% again year-on-year in January so time for the inflation chart again:
There is now a modest amount of evidence that the disinflationary trend is at an end. Here is Jim Dolmas’s commentary from the Dallas Fed:
A hefty increase in core goods prices—following an unusually large decline the previous month—helped boost January’s core rate. The trimmed mean PCE inflation rate, which abstracts from outsized movements in component prices, suggested that December’s underlying rate of inflation was not quite as low as indicated by the core and—naturally—suggests January’s rate is not quite as high as indicated by the core. January’s trimmed mean rate was an annualized 1.0 percent, similar to December’s 1.1 percent. The six- and 12-month trimmed mean rates held steady at 1.1 percent and 0.9 percent, respectively.
The uptick in the six-month core rate, while small, at least represents a step in the direction of the trimmed mean, for which the six-month inflation rate has been steadily creeping up, from a low of 0.7 percent in the middle of last year to this month’s 1.1 percent. Other inflation gauges that rely on trimming—like the Cleveland Fed’s median CPI and trimmed mean CPI—have also shown a noticeable upward drift at the six-month horizon.
While the trimmed mean suggests substantial continuity between December’s data and January’s, one feature of the data which is notably different is the number of items registering price declines, which fell to its lowest level since August of 2008.
Even if the trend is no longer down, however – and that case is not yet proven – it is hard to claim that the data is pointing to any kind of inflationary surge that would require a rapid response from the Fed.