Fed's Favorite Inflation Indicator Surges To Highest Since 1991 As Savings Rate Slumps

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by Tyler Durden
Friday, Jun 25, 2021 - 08:39 AM

After a record plunge in April, Americans' incomes were expected to shrink further in May as 'stimmies' dry up and recovery begins (while spending was expected to rise marginally - but less than in April). The data was mixed (and not good) with incomes -2.0% (slightly better than the -2.5% expected, but still down) but spending was unchanged MoM (missing expectations of a 0.4% MoM rise after a big upward revision in April to +0.9% MoM)

Source: Bloomberg

On a YoY basis, income growth accelerated modestly while spending growth slowed notably (but remains dramatically higher)...

Source: Bloomberg

Citi says the revision in spending largely reflects rising prices in components such as airfares, rental cars, and used cars, and adds that while these abnormally strong price increases should ultimately prove temporary, very strong price increases could continue for another month or two.

Personal Disposable Income is notably weaker as the stimmie-surge evaporates...

On the income side, Government wages rose 3.5% YoY, up sharply from 1.3% in April while private worker wages rose 15.7% YoY, down from the record 19.3% YoY surge in April.

The "good" news for freedom lovers is that big government's hand in the economy got ever so slightly smaller in May as 'only' 20.4% of all income is from government (down from 22.7% in April and down from record 33.5% in March).

The shift in spending vs income has pushed the savings rate lower...

Which leads us to the most important aspect of today's data - The Fed's most-watched inflation indicator, the core PCE Deflator, which soared to +3.4% YoY (as expected). This is the highest level of core inflation since 1991.

Source: Bloomberg

Hot enough for you Mr.Powell? Or is that all transitory too?