The United States is experiencing deflation for the first time since the crisis in April 2020, according to the PCE price index based on BEA data through November 2023.
Monthly Changes in Prices
The Personal Consumption Expenditure (PCE) price index declined by a symbolic 0.07% m/m, where goods fell 0.72% m/m and services rose 0.25% m/m.
The difference between BEA's PCE and BLS's CPI is in the nomenclature of goods and services accounted for, where PCE has slightly broader coverage, especially for financial, insurance, health care, and educational services.
The PCE also has more rapidly changing weights, and this index is directly factored into the GDP calculation in the deflator category for consumer spending. It is the PCE that the Fed takes into account in its forecasts. PCE inflation is generally lower than CPI inflation.
On an annualized basis, goods prices are in deflation at 0.3%, with durable goods down 2.1%, short-term goods down 0.7% y/y, and services down 4.1% y/y after forming a peak of 6% annual growth in early 2023.
This data is difficult to interpret without understanding the "norm". To do this, take the average monthly growth from 2010 to 2016, 2017 to 2019, 2020 to November 2023, and separately for 2022 and 2023.
The period from 2020 combines a deflationary phase in 2020, a worsening of the inflation problem in 2021, an inflationary storm in 2022, and stabilization in 2023. Presenting this period will allow us to estimate a smoothed trend under fiscal and monetary imbalances.
Annualized Trends
- PCE for goods and services: 0.12, 0.14, 0.32, 0.44, and 0.22% for the periods shown. As you can see, inflation is 2.5 times the norm from 2020, but even in 2023, it averages 1.7 times. Although, 0.17% for the last six months and 0.12% for the last three months.
- Complex commodities: -0.01, 0.02, 0.28, 0.39, 0.02%
- Long-term commodities: -0.17, -0.12, 0.21, 0.13, -0.17%
- Short-term goods: 0.06, 0.09, 0.32, 0.54, 0.13%
- Services: 0.18, 0.20, 0.34, 0.47, 0.32%.
Goods are already back to normal, and services are growing 1.6 times faster than normal, primarily driven by the housing sector.
Conclusion
The bottom line, according to the PCE Price Index through November 2023, is that the United States is in deflation, a departure from the April 2020 crisis. Monthly data show a 0.07% decline, with goods falling in price by 0.72% and services rising by 0.25%. Notably, the PCE differs from the CPI in its broader scope and impact on GDP. On an annualized basis, goods deflate by 0.3% and services fall by 4.1%. To understand these trends, it is necessary to compare them to historical averages, and it turns out that services are now growing 1.6 times faster than usual, driven by the housing sector.