Inflationary pressure in the United States is slowing, and more components are moving onto a disinflationary trajectory.
Personal Consumption Expenditures (PCE) is the price index that serves as the basis for deflating consumer spending included in the calculation of US GDP, and it is what the Fed is targeting.
Recent Trends in PCE Inflation
The maximum recorded increase in PCE was 7.1% year-over-year (y/y) in June 2022. The price index rose 6.3% y/y in October 2022 and 3% y/y in October 2023, corresponding to a 0.25% average monthly rate - the lowest since March 2021.
Historical Norms of PCE Growth
The norm for PCE is an average monthly growth rate of 0.14% from 2017 to 2019 and only 0.12% from 2010 to 2016, inclusive. The norm from 2010 to 2019 is just above 0.12%. Accordingly, the current rate, even after the slowdown, is twice the norm.
In the last 6 months of FY23, the average monthly PCE gain was 0.21%, and in the 3 months of FY23, it was 0.26%. From April 2021 (when inflation accelerated) to October 2023, the average monthly increase was 0.41%, which is 3.3 times the rate of price growth in 2010 - 2019.
Inflationary pressures on goods have virtually disappeared, with almost no change over the last 6 months, in line with the 2010 - 2019 norm. According to official BEA statistics, 10-year goods inflation is zero! This is due to the questionable manipulation of hedonic indices.
The main problem lies in services. The average monthly price increase for services was 0.18% from 2010 - 2016, 0.2% from 2017 - 2019, and just over 0.18% from 2017 - 2019.
Over the past year, service prices have risen by 4.4% (peaking at 6% in January - February 2023), representing 0.36% average monthly growth, which is double the usual rate. In the past 6 months, it was 0.29%, and in the past 3 months, it was 0.28%, mostly driven by housing.
So, the inflationary backdrop is centered on services, while goods have reached their historical trend. That's probably all you need to know about the latest inflation trends in the United States.
Conclusion
The inflation is slowing, with personal consumption expenditure (PCE) growth slowing from a peak of 7.1% in June 2022 to 3% in October 2023. While goods inflation remains stable, services, mainly housing, are driving the current inflation trend.