Fed's Favorite Inflation Signal Surges At Fastest Pace In 30 Years As Spending, Income Rise

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by Tyler Durden
Friday, Jul 30, 2021 - 12:37 PM

Following May's weaker than expected data on Americans' income and spending, analysts expected more weakness in income and a small bounce in spending in June, however both saw improvement with Personal Incomes rising 0.1% MoM (-0.3% exp) and Personal Spending up 1.0% MoM (+0.7% exp).

May's income was revised down from -2.0% to -2.2% MoM and spending revised lower from -0.4% to -0.6% MoM.

Source: Bloomberg

Incomes are up 2.3% YoY while spending remains up 13.6% YoY, thanks largely to base case effect still...

Source: Bloomberg

On the income side, private wages are up 11.5% YoY while government workers' wages are rising at a record 8.1% YoY...

All of which means the savings rate tumbled (to 9.4%, the lowest since Feb 20202, pre-COVID)

Remember when the world's prognosticators crowed of the pent-up demand coming any minute from the $2.5 trillion in excess savings... well that number is now down to just $1.7 trillion (almost back to $1.3 trillion 'norms).

Finally, and perhaps most importantly, The Fed's favorite inflation indicator - PCE Core Deflator - rose to +3.5% YoY (vs 3.4% in May), the highest since July 1991...

Source: Bloomberg

This was slightly lower than expected (if that is any silver lining) but still doesn't look very transitory.