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Instant Reaction: Inflation Data · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
0:09
Speaker 2: I'm Nathan Hager in New York, and we are getting
0:11
Speaker 2: some breaking economic data crossing the Bloomberg terminal Personal Consumption
0:16
Speaker 2: Expenditures Price Index for February. This is the Fed's preferred
0:21
Speaker 2: gage of inflation. It comes in at two point eight
0:25
Speaker 2: percent on a year over year basis. That is the
0:28
Speaker 2: core deflator, which leaves out housing rents, which is very
0:33
Speaker 2: volatile in terms of the price pressures that we see.
0:37
Speaker 2: The personal income deflator for the month of February on
0:41
Speaker 2: a month over month basis comes in at three tenths
0:45
Speaker 2: of one percent. That was just shy of what economists
0:48
Speaker 2: surveyed by Bloomberg we're expecting on a four tenths of
0:51
Speaker 2: one percent read, so that's unchanged from the month of January.
0:56
Speaker 2: Personal income comes in a little light at three tenths
0:59
Speaker 2: of one one percent, that's down from one percent in January.
1:03
Speaker 2: And personal spending comes in at eight tenths of one percent.
1:08
Speaker 2: That's quite a bit higher than economists surveyed by Bloomberg
1:11
Speaker 2: had been expecting, and a big jump from a two
1:14
Speaker 2: tenths of one percent read in January. Let's bring in
1:17
Speaker 2: Bloomberg's International Economics and Policy correspondent Mike McKee with a
1:22
Speaker 2: little bit more context on these numbers. In terms of
1:26
Speaker 2: the PC to flavor MIC, it looks like it comes
1:29
Speaker 2: in bang in line with expectations.
1:33
Speaker 1: The headline number is a little bit lower three tenths
1:36
Speaker 1: than was expected at four tenths was the consensus, but
1:39
Speaker 1: of course this is very tight numbers and rounding is
1:44
Speaker 1: probably involved here. We did see inflation revised up on
1:47
Speaker 1: a month over month basis for January from three tenths
1:51
Speaker 1: to four tenths, so we do see a decline there
1:54
Speaker 1: in the month over month, but the year over year
1:56
Speaker 1: rises a little bit from two point forward a two
2:00
Speaker 1: point five percent. That's probably base effects. The core comes
2:05
Speaker 1: in much lower than the prior month. In January it
2:09
Speaker 1: was up half a percent, now it's only up three tenths,
2:12
Speaker 1: and the core deflator on a year over year basis
2:15
Speaker 1: is down to tick two point eight percent for two
2:18
Speaker 1: point nine percent, so it's sort of a mixed picture here.
2:21
Speaker 1: In terms of prices, goods prices increased about half a percent,
2:26
Speaker 1: prices for services increased three tenths of a percent. Now,
2:29
Speaker 1: goods prices had been the major deflationary force over the
2:33
Speaker 1: last several months. So the fact that goods prices increased
2:37
Speaker 1: not particularly good news. We'll look for the breakdown on
2:40
Speaker 1: what happened. Their energy prices were up two point three percent,
2:44
Speaker 1: so that was the major problem. I think. With the
2:48
Speaker 1: good side, food prices increased just a tenth of eight percent,
2:51
Speaker 1: so good news there. So it looks Nathan like it's
2:56
Speaker 1: sort of a mixed picture. It is a little bit
2:59
Speaker 1: better than anticipated, but for the Fed it is not
3:03
Speaker 1: enough to push them to want to make any changes
3:06
Speaker 1: in their timing for rate cuts.
3:09
Speaker 2: Let's talk a little bit about the revisions as well, Mike.
3:12
Speaker 2: We've got those numbers just coming in as well.
3:16
Speaker 1: Yes, as I mentioned the personal spending numbers and eight
3:20
Speaker 1: tenths unrevised real personal spending, though was revised a little
3:25
Speaker 1: bit lower from a last month inflation adjusted basis. In
3:29
Speaker 1: January was down two tenths. It had originally been reported
3:33
Speaker 1: down one tenth and now it's up four tenths for February.
3:37
Speaker 1: So again, that is a good news number for the
3:42
Speaker 1: Fed and for probably the White House because it shows
3:46
Speaker 1: that people are getting a little bit ahead of inflation.
3:51
Speaker 2: So let's talk a little bit more about what's driving
3:55
Speaker 2: these latest numbers right now. You mentioned that the goods
3:59
Speaker 2: side of the inflation picture came in a little bit
4:02
Speaker 2: hotter in terms of the fact that this seems to
4:06
Speaker 2: be coming in as a mixed read. What does that
4:08
Speaker 2: tell us about how the Fed could react.
4:14
Speaker 1: Well, they're going to look past this, They're gonna take
4:17
Speaker 1: it on board, but they don't meet again until May first,
4:20
Speaker 1: so they'll have another indicator for the March numbers just
4:24
Speaker 1: before their meeting at the end of March, and if
4:27
Speaker 1: they see this kind of progress, it's probably not going
4:31
Speaker 1: to be enough to get them to make any kind
4:34
Speaker 1: of moves in May. We're still seeing the inflation numbers
4:38
Speaker 1: a little bit on the high side for them. They
4:41
Speaker 1: use the PCE as their target, and their target of
4:44
Speaker 1: course two percent, and now they're two and a half percent,
4:47
Speaker 1: so they'd want to see more progress there. They'd want
4:50
Speaker 1: to see more progress on the core deflator, because the
4:53
Speaker 1: only reason it looks better today is because it was
4:56
Speaker 1: revised up in January.
4:59
Speaker 2: Bloomberg Internet National Economics and Policy correspondent Michael McKee with
5:03
Speaker 2: us as we continue to analyze this preferred gauge of
5:07
Speaker 2: inflation for the Federal Reserve. The PC deflator coming in
5:12
Speaker 2: a little bit hotter than expected, with two and a
5:15
Speaker 2: half percent year over year read in terms of the
5:20
Speaker 2: headline number, and three tenths of one percent also unchanged
5:25
Speaker 2: on a month over month basis from the month of January.
5:28
Speaker 2: Let's get some more analysis.
5:30
Speaker 1: Now.
5:30
Speaker 2: We're joined by Tom Porcelli, the chief US economist at
5:33
Speaker 2: p GYM Fixed Income. Tom, great to have you with
5:37
Speaker 2: us on this good Friday. Your reaction to these numbers, Yeah.
5:40
Speaker 3: I mean, look, I think Mike has always nailed it.
5:43
Speaker 3: I mean I think that it's sort of a mixed
5:45
Speaker 3: bag here. You know. I think people will look at
5:47
Speaker 3: the spending number and I think, you know, let's say, hey,
5:50
Speaker 3: you know, the consumer is really sort of crushing it
5:52
Speaker 3: here in Q one. But the reality is, I mean
5:56
Speaker 3: this came with a drawdown in saving, an additional drawdown
5:59
Speaker 3: in saving, which is you know again it's it's it's
6:01
Speaker 3: sustainable only to a point, you know, and and and
6:05
Speaker 3: so I don't like that you have this big burst
6:07
Speaker 3: in spending with income that was, you know, sort of
6:10
Speaker 3: fairly modest. Now again, I would say to the mixed
6:13
Speaker 3: bag idea, if you look at wages. Wages were pretty
6:15
Speaker 3: pretty decent. But you know the problem for me, and
6:20
Speaker 3: you know, this is something we've been flagging if you
6:21
Speaker 3: just look at disposable income, right, I mean, that's really
6:24
Speaker 3: where the rubber meets the road on this, you know,
6:27
Speaker 3: disposable income, real disposal income to be specific. You know,
6:31
Speaker 3: it's it's it's been flat. I mean it actually it
6:34
Speaker 3: fell slightly month on months in this report, but you
6:37
Speaker 3: know it's been pretty flat now over the last couple
6:40
Speaker 3: of months. That again, I think just speaks to sort
6:43
Speaker 3: of the long term sustainability of you know, sort of
6:46
Speaker 3: the kind of consumption numbers that we've seen over the
6:48
Speaker 3: last couple of quarters, which is to say, we don't
6:50
Speaker 3: think you know, you're you're looking at a sort of
6:52
Speaker 3: a ripping backdrop here. I mean, I think things are
6:54
Speaker 3: just sort of just moving along at a sort of
6:56
Speaker 3: a you know, a decent pace. It's been our call,
6:59
Speaker 3: you know that that twenty four would be a pretty
7:01
Speaker 3: reasonable year from a growth perspective. But I think there's
7:04
Speaker 3: enough in here and enough being happening that we know,
7:07
Speaker 3: we sort of wonder about the ability for the consumer
7:09
Speaker 3: to really sort of press this meaningfully. More from here.
7:13
Speaker 3: The last thing I'll say on the inflation numbers. You know, look,
7:16
Speaker 3: I think they basically came in as was expected, particularly
7:20
Speaker 3: on the core. You know, core was a three tenths
7:23
Speaker 3: and it actually rounded up to three tenths. You know,
7:25
Speaker 3: it was actually point two six again for whatever that's worth.
7:28
Speaker 3: But I think this is the kind of movement that
7:31
Speaker 3: you know, we've been expecting. I think this is the
7:33
Speaker 3: kind of movement that the Fed continues to expect. So
7:35
Speaker 3: I think unbalanced, there's no big surprises here. I mean,
7:37
Speaker 3: I think whatever you thought about the sort of the
7:39
Speaker 3: backdrop before this number, I think you're going to continue
7:41
Speaker 3: to think that.
7:44
Speaker 1: Oh right up in Tom with a couple of numbers
7:46
Speaker 1: to lead people up to speed on some of the
7:48
Speaker 1: things that you're saying here. Wages and salaries were up
7:50
Speaker 1: eight tenths, which is a very large gain after three
7:53
Speaker 1: tenths in January. Interestingly enough, because the market has risen
7:59
Speaker 1: so much much, we should have seen I would have
8:01
Speaker 1: thought more income on assets, but personal interest income fell
8:06
Speaker 1: four tenths and dividend income down by three point seven percent.
8:10
Speaker 1: So I guess people aren't selling at this point, they're
8:14
Speaker 1: just reinvesting. You mentioned the real personal disposable income. It
8:19
Speaker 1: was down a tenth after being flat last month. That's
8:22
Speaker 1: the first decline since September. So you're right about the
8:25
Speaker 1: issue here of whether or not we're seeing people continually
8:29
Speaker 1: able to spend. It looks like from their from their
8:33
Speaker 1: wages and salaries they can. You mentioned the savings rate
8:37
Speaker 1: three point six percent compared to four point one percent,
8:40
Speaker 1: which is more important the savings rate or raises in
8:44
Speaker 1: your weekly paycheck.
8:46
Speaker 3: Yeah, I mean, you know, they obviously both matter. I
8:48
Speaker 3: mean they matter for different reasons, though, I think that's
8:51
Speaker 3: a really important idea. It's it's great that, you know,
8:55
Speaker 3: we continue to see income at large, right through through wages,
9:00
Speaker 3: through the wage channel, continue to move along at a
9:02
Speaker 3: at a pretty reasonable pace. But again, this this I
9:05
Speaker 3: think you know, we're trying to think big picture here.
9:08
Speaker 3: So the big picture thesis is, well, look, how has
9:12
Speaker 3: the consumer been driving spending. And they've been driving spending
9:15
Speaker 3: through a combination of drawing down saving and then again
9:18
Speaker 3: we're not talking about the excess savings thing, right that
9:20
Speaker 3: that long that story is long since gone. But you
9:23
Speaker 3: know what we're talking about now is cutting into the
9:25
Speaker 3: muscle of saving and so if you look at you know,
9:28
Speaker 3: sort of the bottom ninety nine percent, right, so just
9:31
Speaker 3: excluding the top one percent, what you see is that
9:35
Speaker 3: saving is now below where you would have been in
9:39
Speaker 3: a sort of a pre COVID baseline estimate. You know,
9:42
Speaker 3: that to me is noteworthy. And then you have to
9:45
Speaker 3: also consider there's sort of the other channel through which
9:47
Speaker 3: the consumer has really been able to sort of drive spending,
9:50
Speaker 3: and that's that's through credit usage, which again you know
9:54
Speaker 3: these are these are things that can persist, but you
9:57
Speaker 3: know that that this is not necessarily the healthy way
10:01
Speaker 3: of doing that spending.
10:03
Speaker 2: And just to reiterate, the Fed's preferred gauge of underlying
10:06
Speaker 2: inflation did cool last month after an even bigger January increase.
10:10
Speaker 2: When you factor in the revisions, the core Personal Consumption
10:13
Speaker 2: Expenditures price index stripping out food and energy increased three
10:17
Speaker 2: tenths percent from January, following a half percent reading in January.
10:23
Speaker 2: That was the biggest back to back gain in the
10:24
Speaker 2: year two point eight percent on a year over year basis.
10:29
Speaker 2: Nathan Hager in New York with more analysis of these
10:33
Speaker 2: inflation numbers and talking about the spending that we continue
10:38
Speaker 2: to see in this economy, the consumer continuing to hold up.
10:42
Speaker 2: Is there still a concern Tom that that is being
10:45
Speaker 2: driven by credit card usage by pulling into debt and
10:52
Speaker 2: can savings bolster that when we have the kind of
10:56
Speaker 2: inflation of elevated interest rates that we're seeing in this
11:01
Speaker 2: economy right now.
11:02
Speaker 3: Yeah, it can, it can it can persist. I mean
11:04
Speaker 3: we've seen this right historically. I mean to say, if
11:08
Speaker 3: if the consumer wants, they could draw down saving to zero,
11:11
Speaker 3: you know, in over three point six percent, So so
11:13
Speaker 3: it can certainly happen, and I think it can persist.
11:16
Speaker 3: And I think, you know, if I think about our
11:18
Speaker 3: forecast for this year and even into next year, you know,
11:22
Speaker 3: I think you're looking at a sort of you know,
11:24
Speaker 3: well again what will be sort of a trend like growth.
11:27
Speaker 3: So I have no I have no challenge with the
11:30
Speaker 3: actual numbers. What I have the challenge. What I have
11:32
Speaker 3: a challenge with is is how it's being achieved, because
11:36
Speaker 3: that that that's not enduring, right, I mean, you don't,
11:38
Speaker 3: you don't you don't generate and enduring you know, slash
11:42
Speaker 3: lasting economic expansion when when when that's doing the driving
11:47
Speaker 3: I think what we need to really look to is
11:49
Speaker 3: the sort of the labor backdrop, and look, I think
11:51
Speaker 3: that there's certainly some slowing that's taking place in pockets
11:55
Speaker 3: of the labor backdrop. I think that's, you know, been
11:58
Speaker 3: pretty apparent now for the lack tendful of months. I
12:03
Speaker 3: am encouraged by the wages and salaries increase. We'll want
12:08
Speaker 3: to dig into that more just to sort of see
12:11
Speaker 3: what the details were on the back of this number.
12:15
Speaker 3: But that kind of story for us really sort of
12:18
Speaker 3: fits snugly into our view. I mean, we think you
12:20
Speaker 3: can easily run at a one and a half to
12:22
Speaker 3: two percent pace this year, and I don't see any
12:24
Speaker 3: reason to sort of alter that view at this point.
12:27
Speaker 1: We had a little something here on the markets because
12:30
Speaker 1: we talked about how dividend and interest income was down
12:35
Speaker 1: during the month. We also see that the contributions to
12:39
Speaker 1: inflation from Wall Street are down significantly, I guess because
12:44
Speaker 1: maybe everybody's just reinvesting and not taking profits. But financial
12:48
Speaker 1: services fees and commissions just up a tenth of a
12:52
Speaker 1: percent after rising more than two percent last month, So
12:57
Speaker 1: a little bit less inflation pressure coming out of Wall Street.
13:01
Speaker 1: What we had called the pogo problem. As we do
13:04
Speaker 1: well on Wall Street, it increases inflation. But that brings
13:09
Speaker 1: up another question for you, Tom, and that is the
13:13
Speaker 1: wealth effect. The FED worries that the wealth effect is
13:17
Speaker 1: going to drive the economy longer. Do we see that
13:21
Speaker 1: really from the gains that we have seen in equity markets?
13:26
Speaker 1: Are people out spending that money or is that a
13:29
Speaker 1: subset of people who are making money who don't really
13:32
Speaker 1: have a marginal propensity to consume that is all that
13:36
Speaker 1: very high?
13:38
Speaker 3: So I will say that I believe in the wealth
13:40
Speaker 3: effect in the extremes, and I think it's very fair
13:44
Speaker 3: to say that we're in an extreme. I mean, if
13:46
Speaker 3: you think about sort of the single biggest asset for
13:49
Speaker 3: most people in this country, the single biggest outset at
13:52
Speaker 3: their house. And I think what people see is that
13:55
Speaker 3: their home prices have accelerated and accelerated in a very
13:58
Speaker 3: notable way. And I don't doubt for second that that
14:01
Speaker 3: feeds into this sort of hey, you know, I'm actually
14:05
Speaker 3: doing pretty good here, and that emboldens people to continue
14:09
Speaker 3: to go out and feel comfortable spending. Of course, I
14:12
Speaker 3: think what we have to recognize is it's great that
14:15
Speaker 3: home prices have written as much as they have, but
14:17
Speaker 3: you know, any of that home equity is trapped, right,
14:21
Speaker 3: This trapped because we're in a higher rate environment and
14:24
Speaker 3: it becomes incredibly complicated or very expensive for people to
14:28
Speaker 3: basically extract that money. So you know, again, i'd be
14:32
Speaker 3: careful with that idea. I mean again, I don't doubt
14:35
Speaker 3: for a second that it's happening, but it's paper wealth
14:40
Speaker 3: because because of high rates, no one can extract any
14:43
Speaker 3: of that.
14:44
Speaker 2: And tom as you know, we're going to be hearing
14:46
Speaker 2: from Chairman Powell in just a couple hours here eleven
14:49
Speaker 2: thirty am Wall Street time. He's going to be taking
14:51
Speaker 2: part in a moderated discussion. Do you expect these numbers
14:54
Speaker 2: are really going to change the message that we hear
14:57
Speaker 2: from Powell? As he's sounded a little at least a
15:01
Speaker 2: little bit more comfortable with the way the inflation roadmap
15:06
Speaker 2: has been going up to this point.
15:08
Speaker 3: Yeah, that's it's a resounding no. I mean that these
15:10
Speaker 3: numbers will not change anything for Powell. He literally just
15:14
Speaker 3: spoke there will be no reason for him to alter
15:18
Speaker 3: any of his messaging. Again, I think you know, this
15:21
Speaker 3: is something that they were looking for, particularly this core deflator,
15:25
Speaker 3: you know, hovering here at it now at two eight
15:28
Speaker 3: I think that this is this is the path that
15:30
Speaker 3: they were expecting from from an inflation perspective, and you know,
15:33
Speaker 3: and and again, I think the one thing that really
15:35
Speaker 3: came through very loud and clear during his last press
15:38
Speaker 3: conference was this this idea of over time, right. He
15:42
Speaker 3: kept on saying. In fact, I think he literally even said,
15:44
Speaker 3: we stress over time inflation will improve. Uh. And he
15:49
Speaker 3: said the multiple times. And I think that that that
15:51
Speaker 3: that fits very nicely with the numbers that we just saw.
15:55
Speaker 3: It is continuing to prove improve over time. I think
16:00
Speaker 3: the other thing that was really interesting, and this is
16:01
Speaker 3: probably more micro, but on Powell, I thought it was
16:04
Speaker 3: really interesting that he was that he acknowledged sort of
16:07
Speaker 3: these these base effects that we're going to start to
16:09
Speaker 3: bump up against in the second half of the year.
16:12
Speaker 3: You know, it's it's going to be a challenge for
16:14
Speaker 3: for inflation to really improve in earnest from a month
16:18
Speaker 3: on month perspective, because you're going to have these easy
16:20
Speaker 3: year ago comps, excuse me, these unfavorable year ago comps
16:24
Speaker 3: in the second half of the year. So if you
16:26
Speaker 3: think about excuse me, if you think about sort of
16:28
Speaker 3: a direction of inflation, you know, you'll continue to drift lower.
16:32
Speaker 3: I mean, here we are at what two seven or
16:34
Speaker 3: excuse me, two eight rounds up to two eight, and
16:36
Speaker 3: I think you'll get probably down to a round two
16:39
Speaker 3: four ish in the next few months. But as you
16:43
Speaker 3: roll into the second half of the year, it's going
16:45
Speaker 3: to start to accelerate again. You know, you can get
16:47
Speaker 3: easily back up to about two point seven percent after
16:50
Speaker 3: hitting two point four percent around middle of the year,
16:52
Speaker 3: just because of comps and I and one of the
16:55
Speaker 3: reasons why I love that he said that is because
16:58
Speaker 3: he's I think, you know, trying to pre empt what
17:00
Speaker 3: could be what will be a conversation around hey, but
17:03
Speaker 3: inflation is accelerating again. But again it's important to note
17:07
Speaker 3: that it's comp challenge, you know, that's and just to
17:11
Speaker 3: be clear, sorry to make sure this is abundantly clear.
17:13
Speaker 3: If you print two tents month on month between now
17:16
Speaker 3: and the end of the year, that's how those year
17:18
Speaker 3: ago comps will unfold. You'll get it down to his
17:20
Speaker 3: lowes two four, and then you can get that bounced
17:22
Speaker 3: back up to around two seven. So I like that
17:25
Speaker 3: he's sort of, you know, trying to draw attention to that.
17:28
Speaker 3: But again, yes to The short answer to your question
17:30
Speaker 3: is no, I don't think that there's anything here that
17:32
Speaker 3: will that will alter his his view on what he already.
17:36
Speaker 2: Said, and we will get that message at eleven thirty
17:38
Speaker 2: am Wall Street Time live coverage of Chairman Powell's moderated
17:42
Speaker 2: remarks at the San Francisco Fed later on this morning. Tom,
17:46
Speaker 2: thanks for being with us as we dig a little
17:49
Speaker 2: deeper into this latest inflation data. Tom Porcelli there, the
17:53
Speaker 2: chief US economist at PGIM Fixed Income, and I'm Nathan
17:56
Speaker 2: Hayger along with Bloomberg International Economics and Policy Corps. Responded
18:00
Speaker 2: Michael McKee. As we continue to get some more analysis
18:04
Speaker 2: of the PCE deflator. We're joined now by Sarah House,
18:08
Speaker 2: the senior economist at Wells Fargo. So it seems, Sarah,
18:12
Speaker 2: a bit of a mixed bag. The bumpy road to
18:15
Speaker 2: disinflation seems to continue following these numbers.
18:18
Speaker 4: Your thoughts, Yeah, I think that's right, especially when we
18:22
Speaker 4: look at inflation. So we did see some bumps in
18:24
Speaker 4: terms of the underlying movers shift around a bit. So
18:28
Speaker 4: this month we actually saw some more moderation in terms
18:31
Speaker 4: of the services side, but you did see the goods
18:34
Speaker 4: inflation pick up a little bit on a month of
18:36
Speaker 4: a month basis, which again I think just speaks to
18:39
Speaker 4: that month a month. You are going to see some
18:42
Speaker 4: volatility in these numbers, but I think overall you're still
18:46
Speaker 4: seeing signs of at least the overall trend grinding lower.
18:50
Speaker 4: But it's certainly a slow grind that we're seeing.
18:55
Speaker 1: It's Michael McKee. I'm looking at the super core number
18:59
Speaker 1: for pee. We haven't talked about that yet this morning,
19:02
Speaker 1: and on a month over a month basis, it's up
19:04
Speaker 1: by two tenths after seven tenths gained the month before.
19:07
Speaker 1: So that's probably going to make the Fed and j
19:11
Speaker 1: POL happy because they've been particularly worried about services prices.
19:15
Speaker 4: Yeah, I think that's at least one of the more
19:17
Speaker 4: encouraging developments of this morning's data in terms of the
19:20
Speaker 4: inflation trajectory. But when we think about the services side,
19:25
Speaker 4: you know, we really do need this to start shipping
19:28
Speaker 4: in more so. We've had significant goods goods disinflation over
19:32
Speaker 4: the past year. So if you look at just the
19:35
Speaker 4: change in the year of rear rates of inflation, basically
19:37
Speaker 4: two thirds of it has had two thirds of the
19:40
Speaker 4: decline has come from the good side, and so given
19:43
Speaker 4: how big a share services is, we need to see
19:45
Speaker 4: that to clerate more. So this is a good month,
19:49
Speaker 4: but the Fed's certainly going to need to see more
19:51
Speaker 4: months like this in terms of that services inflation subsiding
19:56
Speaker 4: a little bit.
19:57
Speaker 3: Well, what's the.
19:57
Speaker 2: Outlook then about whether we are going to more months
20:01
Speaker 2: like this. Something else we haven't talked about is the
20:03
Speaker 2: disruption at the port of Baltimore after the bridge collapse,
20:07
Speaker 2: and think about what effect that could have on goods
20:10
Speaker 2: inflation down the line. I mean, is that something that
20:14
Speaker 2: we can factor in at this point.
20:16
Speaker 4: I think it's really hard to put a number around
20:18
Speaker 4: what that's going to do, but I think it certainly
20:20
Speaker 4: doesn't help in terms of seeing further goods deflation or
20:25
Speaker 4: at least a still pretty low rate of goods inflation.
20:29
Speaker 4: So it's just one more hurdle. We've seen a lot
20:31
Speaker 4: of the benefits from the initial unwinding of supply chains
20:35
Speaker 4: already feed through, and we look at even before we
20:38
Speaker 4: saw this Baltimore bridge collapse, that supply chain pressures have
20:43
Speaker 4: really neutralized. So I think when we look out over
20:46
Speaker 4: the course of this year, you aren't going to see
20:48
Speaker 4: as much help coming from the goods side in terms
20:52
Speaker 4: of in terms of the core, and so again that
20:55
Speaker 4: means that services are going to have to pick up
20:57
Speaker 4: the baton and we are going to need to see
20:59
Speaker 4: more inflation coming from the services side if we're going
21:02
Speaker 4: to keep moving back towards two percent.
21:06
Speaker 2: So is there much more that the FED can do
21:09
Speaker 2: to get that services side of the equation down?
21:15
Speaker 4: I think so. They've had a lot of help in
21:18
Speaker 4: terms of the supply side on services too, when we
21:20
Speaker 4: think about the labor market and just how much we've
21:23
Speaker 4: seen labor force growth improve, and that's been a big
21:26
Speaker 4: help in terms of reducing those wage pressures. But when
21:30
Speaker 4: we look at some of the wage numbers, they're getting
21:32
Speaker 4: close to where the FED would need them to be,
21:35
Speaker 4: but not there yet, and where we still haven't hit
21:37
Speaker 4: two percent inflation, let alone on a sustained basis. I
21:40
Speaker 4: think this is going to be a waiting game. So
21:43
Speaker 4: we've already seen expectations for any easing get pushed out
21:47
Speaker 4: a little bit, and I think until we see I
21:50
Speaker 4: think more improvement on the services side, it's going to
21:52
Speaker 4: continue to be a matter of Okay, So do you
21:57
Speaker 4: get that timing of when the FED be against the
22:00
Speaker 4: cut rates start pushing back and see that even move further.
22:05
Speaker 2: So can you say at this point whether a read
22:07
Speaker 2: like this will change the equation in terms of what
22:10
Speaker 2: the FED is thinking about the rate path at this point,
22:14
Speaker 2: I mean, they've already penciled in. I think in the
22:16
Speaker 2: dot plot the median is still three. I mean, does
22:20
Speaker 2: that really change things after a reading like this.
22:23
Speaker 4: I don't think so. I mean, especially if we're focused
22:25
Speaker 4: on inflation. That came in pretty much in line. It
22:29
Speaker 4: was a touch softer for going out to two decimals,
22:33
Speaker 4: but it came on top of the upward versions of January,
22:36
Speaker 4: so it doesn't really change the picture. And at the
22:38
Speaker 4: end of the day, you still have consumers that are
22:41
Speaker 4: out there willing to spend, and so that's going to
22:44
Speaker 4: make it harder for that demand side to chip in
22:46
Speaker 4: and help drive inflation lower. As we maybe are seeing
22:49
Speaker 4: some of the supply side benefits begin to fade this year,
22:53
Speaker 4: as we have seen much more normalization and supply chains,
22:56
Speaker 4: and I think you're going to get only more incremental
22:58
Speaker 4: growth and labor supply. After two big years of labor
23:02
Speaker 4: force growth.
23:04
Speaker 1: We did see some improvement, very small improvement, but improvement
23:08
Speaker 1: in housing prices in PCE of four tenths for the
23:12
Speaker 1: month after a five tense gain last month. So I
23:15
Speaker 1: guess I would ask, partly from your national experience, Sarah,
23:20
Speaker 1: but also from being in the Charlotte area, which has
23:22
Speaker 1: been a hot real estate area, are we finally going
23:25
Speaker 1: to start to see the declines that the FED has
23:27
Speaker 1: been looking for in housing?
23:30
Speaker 4: I think there's still some room to go in terms
23:32
Speaker 4: of the housing disinflation story. So obviously that's been a
23:36
Speaker 4: big part of the stronger prints to start the year,
23:40
Speaker 4: even as again we did see a little bit more
23:42
Speaker 4: moderation in the February numbers here today. But I think
23:46
Speaker 4: when we look at everything that we're seeing in terms
23:49
Speaker 4: of the private sector measures, that there is still more
23:52
Speaker 4: disinflation in training to come in housing. I think the
23:55
Speaker 4: big question is the magnitude of how much further that falls,
23:59
Speaker 4: and of course some of the timing. So I think
24:02
Speaker 4: we feel pretty confident in the direction that it seems
24:05
Speaker 4: like Chuirpal feels pretty confident in the direction he spoke
24:08
Speaker 4: to out specifically in his press conference, but there's still
24:12
Speaker 4: a lot of questions around the timing and if it
24:15
Speaker 4: takes too long and you start to see that impulse
24:18
Speaker 4: from the downward impulse from goods deflation begin to peter out.
24:23
Speaker 4: That's going to be a contributing factor to inflation being
24:26
Speaker 4: a bit stickier as we move through this year.
24:30
Speaker 1: Well, let me circle back to one more thing before
24:32
Speaker 1: we let you go here, and that is a personal
24:34
Speaker 1: income wages and salaries up eight tenths of eight percent
24:38
Speaker 1: after just three tenths in January. Does that tell you
24:42
Speaker 1: anything in particular? Is that noise or are companies having
24:46
Speaker 1: to pay up more to attract workers with still a
24:49
Speaker 1: strong labor market.
24:51
Speaker 4: Yeah, So I think that's reflective of the fact that
24:53
Speaker 4: we did see another strong month of hiring in February,
24:56
Speaker 4: and you saw the work week pick up two So
24:59
Speaker 4: I think overall that that's reflecting that the labor market
25:02
Speaker 4: is still strong. And this is really important for the
25:04
Speaker 4: durability of consumer spending ahead. Even if it looks like
25:08
Speaker 4: consumers we're having to save a little bit less to
25:11
Speaker 4: fund their outlays here in February. But I think that's
25:15
Speaker 4: one of the bright spots in terms of seeing this
25:18
Speaker 4: economy continue to expand and deal with these higher interest rates,
25:22
Speaker 4: is if the labor market continues to chug along that
25:25
Speaker 4: that's going to be helpful for the bulk of consumers.
25:30
Speaker 2: Sarah, We're in this unusual circumstance where all this data
25:32
Speaker 2: are coming out on a holiday, the stock trading and
25:37
Speaker 2: the bond markets are both closed for Good Friday. What
25:41
Speaker 2: kind of market reaction can we expect to data like
25:45
Speaker 2: this when the market's finally open on Monday.
25:48
Speaker 4: Yeah, So I think on net this shows that the
25:51
Speaker 4: consumer is still out there spending. It's no shrinking violet,
25:55
Speaker 4: and so I think that does question how much the
25:58
Speaker 4: demand side is going to help bring inflation lower. And
26:02
Speaker 4: so I think that's maybe the most important takeaway from
26:05
Speaker 4: today's report, considering that the inflation numbers came in essentially
26:09
Speaker 4: as expected.
26:12
Speaker 2: And so what kind of do you do you expect
26:15
Speaker 2: then that we could see bond volatility when the markets
26:19
Speaker 2: reopen on Monday.
26:21
Speaker 4: Well, they'll have some time to digest this. I mean,
26:22
Speaker 4: I think it's also going to depend on what we
26:24
Speaker 4: hear from from Powell this afternoon. So we'll see if
26:27
Speaker 4: he makes waves. I think he tries. He tries not to,
26:29
Speaker 4: but I think it'll It'll be a combination of both
26:32
Speaker 4: today's numbers and what the chair has to say.
26:35
Speaker 2: Yeah, and again we are going to have those comments
26:37
Speaker 2: from Chairman Powell. Eleven thirty am Wall Street Time here
26:40
Speaker 2: on Bloomberg Radio in that moderated discussion hosted by the
26:44
Speaker 2: San Francisco FED. I asked Tom earlier, if you're expecting
26:47
Speaker 2: any change to the messaging. Do you expect that we'll
26:51
Speaker 2: hear much change from Chairman Powell after this inflation data.
26:56
Speaker 4: I don't think so, considering that, again, the inflation data
26:59
Speaker 4: was pretty much pretty much spot online with expectations going
27:03
Speaker 4: in once you mapped both the CPI and PPI data,
27:07
Speaker 4: And it hasn't been that long since since he spoke,
27:10
Speaker 4: since he spoke before, so I think we're going to
27:12
Speaker 4: continue to hear him say that they need to see
27:14
Speaker 4: more confidence that yes, they're looking for inflation to come down,
27:19
Speaker 4: to come down over time, but I think in the
27:21
Speaker 4: mediate term there's still no catalyst I think for moving
27:25
Speaker 4: imminently here.
27:26
Speaker 2: Appreciate this. Sarah, thanks for coming on with us on
27:29
Speaker 2: a market holiday. Sarah House there a senior economist at
27:33
Speaker 2: Wells Fargo. As we continue to digest this preferred inflation
27:38
Speaker 2: gauge for the Federal Reserve, the PCE deflator coming in,
27:43
Speaker 2: as you mentioned, Mike, with a little bit of a
27:45
Speaker 2: mixed bag, kind of in line on a year over
27:48
Speaker 2: year basis, but some slight cooling month over month.
27:53
Speaker 1: Yeah, it's not the kind of thing that Sarah said
27:55
Speaker 1: would change the Fed's mind. It would be considered relatively
27:59
Speaker 1: good news for the FED in terms of continued progress
28:03
Speaker 1: on inflation, but as you mentioned, continued slow and bumpy
28:07
Speaker 1: progress on inflation.
28:12
Speaker 2: Yeah, it seems like that last mile, as the Fed
28:15
Speaker 2: has been reiterating for quite some time, that last mile,
28:18
Speaker 2: is going to be quite a ways to go in
28:22
Speaker 2: terms of getting inflation back down to that two percent target.
28:26
Speaker 2: Of course, that the FED has been talking about now
28:29
Speaker 2: for months, as we've continued to watch this inflation journey
28:35
Speaker 2: go on to try to get these price pressures back
28:38
Speaker 2: under control, and again with the PCE data coming out
28:43
Speaker 2: this morning, slightly cooler than a lot of economists have
28:47
Speaker 2: been expecting, particularly on a month over month basis, when
28:50
Speaker 2: you factor in the revisions for January that had come
28:53
Speaker 2: in even bigger than expected, three tenths of one percent
28:57
Speaker 2: increase month over month on the headline pclator and a
29:01
Speaker 2: two point eight percent year over year. I'm sorry, two
29:05
Speaker 2: point five percent. For the headline, it was two point
29:07
Speaker 2: eight percent year over year when you strip out the
29:12
Speaker 2: food and energy from the PCEE deflator. You've been listening
29:15
Speaker 2: to live coverage of this economic data. The FEDS preferred
29:20
Speaker 2: inflation gauge coming in with a bit of a mixed bag.
29:24
Speaker 2: Nathan Hager alongside Bloomberg International Economics and Policy correspondent Michael McKee.
29:30
Speaker 2: Stay with us. Your top business headlines and global news
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