Housing costs jumped. Stubbornly high housing inflation has frustrated Powell for a long time.
By Wolf Richter for WOLF STREET.
The “Core” PCE price index, the Fed’s primary yardstick for its 2% inflation target, rose by 2.7% from a year ago in August, the second slight acceleration in a row, and the biggest increase since April (red in the chart below). This “core” index attempts to show underlying inflation by excluding the components of food and energy as they can jump and drop with commodity prices.
The overall PCE price index, which includes the food and energy components, rose by 2.2% year-over-year in August, a deceleration, on plunging energy prices (-10.1%) and slower rising food prices (+1.1%).
The “core services” PCE price index increased by 3.8% in August year-over-year, the first acceleration since March, on accelerating housing costs (yellow). The durable goods PCE price index fell less than in the prior months, in August by -2.2% year-over-year, the smallest drop since April (green):
The month-to-month moves.
The “core” PCE price index rose by 1.6% annualized in August from July (not annualized, +0.13%), a deceleration from July (blue in the chart below).
Within it, two forces – core services and durable goods – pulled in opposite directions as durable goods prices continue to deflate from the pandemic spike.
The six-month annualized core PCE price index, which irons out the month-to-month squiggles and includes all revisions, decelerated to 2.4% annualized (red):
The “core Services” PCE price index rose by 2.8% annualized in August from July (+0.23% not annualized), second deceleration in a row.
The six-month core services index rose by 3.3% annualized (+0.27% not annualized), the first acceleration since April.
Core services include housing, healthcare, financial services & insurance, transportation services, non-energy utilities, communication services, recreation services, food services & accommodation, and “other” services.
The housing costs PCE price index, which is part of core services, jumped by 5.7% annualized in August from July (+0.47% not annualized), the second month in a row of sharp acceleration.
The six-month index rose by 4.9% annualized, the first acceleration all year.
Year-over-year, the housing costs PCE price index accelerated for the first time since April 2023, rising by 5.3%. Stubbornly high housing inflation – which has remained high against all predictions – has long frustrated Powell.
Durable goods PCE price index fell in August from July by 2.9% annualized (-0.24% not annualized). The six-month index also fell by 2.9% annualized.
Durable goods include motor vehicles, recreational goods and vehicles, appliances, electronics, furniture, etc.
The index tends to run in a slightly negative range during normal times amid manufacturing efficiencies, technological improvements, and globalization. It’s the services that have been the driving force of inflation for many years. But during the pandemic, durable goods prices spiked massively due to the sudden demand fueled by the stimulus funds, and that exaggerated demand hit tangled-up supply chains. The resulting shortages and consumers suddenly willing to pay whatever gave companies enormous pricing power. So now, the PCE price index for durable goods is roughly back to normal:
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Well that put the brakes on the drop in t bill rates.
When NVDA reaches 150 I may buy coffee farm from you
Then I will employee cheap labor (and hopefully eventually robot slaves) to farm my coffee trees
How easy is it to do the farming? I think it must be easy No?
I have a few acres on the BI. I don’t “farm” them though, just a little landscaping most days. Its easy when its mostly lava rock.
Just ran the Kau Coffee Trail Run last Saturday. Running through the coffee farm trails is always fun. A lot of workers out there picking coffee by hand. Not cheap coffee either because you have to pay all the workers minimum wage and health insurance.
Coffee is hard work. Like all farming. But it keeps you in shape! And you’re outdoors looking at the mighty Pacific.
Worst case you eat well!
Elbow says minimum wage for workers…my neighbor manages 60 acres of coffee farms…he can’t get labor for less than $25 hrs cash. And he is Hispanic…
You guys need to find a farm in Colombia to buy. The coffee pickers there are lucky to make $250 USD a month.
I agree because it is the obviously the, straw dog that right thing to do for me and apparently for also you. Ignoring the fact that I’m an insignificant nothing, it has the feel of a synthetic economy, which is an oxymoron.
The first thing on the menu is the savers, the long treasuries, again.
After losses of up to 45 pct by holders long term treasuries, the US long term debt, the risk free security became the riskiest.
Protect your wealth Coinhuskers best prices in USA
Yes, the first order of business for one is too inoculate their exposure to the dollar. One could diversify by purchasing an Italian bond which currently sports an interest rate that is lower than a comparable duration US treasury bond.
Through the looking glass seems a useful guide while rationalizing the absurdities. We all do it.
Looks like we’re definitely back to bad news is good news and good news is also good news kind of mood in WS judging by how the market is rally hard today and once again back to all time high. Guess that .50 basis cut really set ingrain in their head, cut is only direction it can go from now on no matter what..
As for the FED, have fun with this data, if they truly care about inflation, then they will soon realize they are looking at a F around and find out moment cutting that much while we’re not at target. That’s assuming they truly care, if not then this data probably won’t change influence them to pause next meeting or even hike.
“Looks like we’re definitely back to bad news is good news and good news is also good news kind of mood in WS judging by how the market is rally hard today and once again back to all time high”
Haha. That’s exactly what it is. We are in an eternal bull cycle, which is feeding the inflation.
The core services inflation is the actual inflation most people feel and should be the yard stick, as it is the one which people spend most their income on and is not subject to “hedonic adjustments”.
Thanks FED and rep and dem govts for this valuable gift made with a gargantuan balance sheet and ever increasing budget deficits. That’s exactly what we needed.
SP500 & Nasdaq in red after the news.
SP and Nasdaq are basically flat. Dow and Russell up modestly. All the indexes came roaring out of the gate this morning but lost steam.
These problems are transitory. I’m sure it’s not a big deal, everything is fine.
Sometimes new drivers or older people accidentally stomp on the gas instead of the brakes. That’s how you end up seeing cars driven through the front of restaurants or plate glass windows at strip malls.
Anyway, as inflation moves back towards 3% not 2% Powell needs to stop on one of those pedals. I would have thought this called for the brake pedal but what do I know.
I thoroughly enjoyed this. I feel like thats what’s happening, we have senile people at the wheel who are pressing on the wrong pedals! At least the old people at the mall who did it, didn’t step on the wrong pedal to benefit themselves, it was a real accident.
Just watch oil. It’s down 25% from where the opec cartel likes it. That’s what’s making inflation look *tamed*. When it goes back up, so will the price of most goods/services. It’s cyclical, so you know it will. I’ve made quite a bit of money buying on the down cycles.
It amazing the polar opposite headlines over at CNBC, looking at the same data. I’ll go with Wolf’s take, yes inflation is going back up. We are supposed to believe that Powell is unaware that giving a home loan to anyone with a pulse drives up home prices? I don’t think so. We have seen this movie before…
Hedge accordingly.
I would instead say:
“Fed Favored Annual Core PCE Price Index Growth Decelerates to 2.7%”
Still thinking how my brain did what it did. Maybe because FEDs preferred gauge is PCE, not core PCE? I should read stuff more carefully.
“the personal consumption expenditures price index
The Fed tends to favor the inflation gauge that the government issued Friday — the personal consumption expenditures price index — over the better-known consumer price index. The PCE index tries to account for changes in how people shop when inflation jumps”
It ACCELERATED from a 2.6% increase in July to a 2.7% increase in August. It increased at a faster rate in August than in July.
From the article, emphasis mine:
The “core” PCE price index rose by 1.6% annualized in August from July (not annualized, +0.13%), a DECELERATION from July (blue in the chart below).
The six-month annualized core PCE price index, which irons out the month-to-month squiggles and includes all revisions, DECELERATED to 2.4% annualized (red)”
You can cherry pick whatever piece of data you want to make your case, the article provides both.
I passed a remodeled home on the SF Peninsula yesterday with a for sale sign and went to Zillow to see what they were selling it for. The 3 bed 3
bath 1,785sf home just had a $100K “price cut” but is still over $2.5mm Zillow has an “estimated monthly payment” of over $16K. Since you can’t just like and tell the bank you make over $1mm a year (like you could in 2005) you are going to need more than a “pulse” to get a loan to buy a home today with the still crazy high Bay Area prices.
Funny, maybe not quite at $2.5M level but here in SoCal, particularly in OC like Placentia, Irvine, Ladera Ranch and all the way to Long Beach, I regularly see houses listed for $1M+, nothing big or fancy still getting sold…so either people are all making Sr Director/VP level salary or the bank is somehow still lending to them….guess $6k -$7K is not a big deal to many people…wonder how this picture will end…
For most Americans, the families of those that won the peace, will never own a home in the zip codes your bragging about.
Honestly, the last thing I want is snobby rich neighbors
@dang I live in the same zip code where my parents (who didn’t go to college) bought a home in the early 60’s for just over $20K and I grew up (and my parents still live in their 90’s) Sorry if I come off as “bragging” since I like you “the last thing I want is snobby righ neighbors” and for the last 20 years on the Peninsula and in Tahoe my neighbors have been getting richer and with rare exceptions “snobbier”. @Phoenix_Ikki It seems like more people buying $1mm+ homes in CA are coming in with massive down payments from 1. Family money, 2. Stock Options or 3. Selling another property in CA (few people save up to put 20% down on a $2.5mm Peninsula “starter home” and qualify to service a $2mm loan with their monthly take home pay)…
If you go look at the mix of credit ratings getting loans and household finances it’s not really a matter of giving home loans to anyone with a pulse.
Mr Wolf I have a question… FT writes “Federal Reserve’s preferred inflation measure falls more than expected to 2.2%”
I read your article so don’t flame me I am just stupid. You wrote that inflation measures rose but FT wrote this morning they fell.
Is FT talking about the durable goods that you mentioned decreased 2.2%? They don’t really explain it much in their article, whereas you have details that my dumb non-AI brain cannot parse
Pls no flame just educate this mega dummy :]
You’re just gonna hafta actually “read” the first 3 paragraphs because they’ll tellya ixactly, and also look at the #1 chart.
Hint: If the FT actually said that, it’s wrong. The preferred inflation measure of the Fed is NOT the overall PCE price index, but the “core PCE price index,” the measuring stick for its inflation target. And everyone knows that, except the FT? And now re-read (= actually read) the first three paragraphs. Good luck gnawing our way through them.
Yes, I did a stupid mistake misreading your title.
happens
I’m not the person who asked the question, but I can confirm that the FT’s *headline* is, word for word, what Anonymous said it was. The story itself is behind a paywall, though, and I’m not about to pay to find out why and how the FT is wrong. :)
What paywall?
Here’s a quote:
“ The core measure rose by 2.7 per cent, matching economists’ expectations and comparing with a 2.6 per cent increase in July.
“Overall the trend in inflation is certainly looking better,” Slok said. “Things are moving in the right direction for the Fed.”
However, they start off by saying:
“ The Federal Reserve’s preferred measure of US inflation dropped by more than expected to 2.2 per cent in the year to August, paving the way for the central bank to cut interest rates again in November.
The data on the personal consumption expenditures price index compared with economists’ expectations of a 2.3 per cent annual gain and July’s figure of 2.5 per cent”
> The garbled noise and stupidity from all the media is perfectly suited for ai hallucination and misinformation amplification — on top of the Fed sending out ambiguous distorted jawboning — the Tower of Babel is growing at a rapid rate!
That’s OK. A Yahoo Finance story today about Florida real estate claims gives other examples, including:
“Fort Wayne, Indiana: With median listing prices 102% below the national average, Fort Wayne offers an affordable entry point. Recent price dips could spell opportunity for long-term investors.”
Sounds like a good deal; a free house + 2% walking around money.
“Journalists” and numbers almost invariably do not get along well. Or we could blame AI.
I read that CNN is getting a paywall. I almost barfed when I read that. I think they put out mostly excrement. Do they think that I/we will pay for excrement? This will make CNN go down the drain even further. Sinking ship.
Potential silver lining. Would be high housing costs in some way deflationary? If renters and mortgage payers and new prospective buyers not spend money on other things?
The idea is that housing cost IMO does not act as a (strong) positive inflation feedback. As oppose to e.g. energy. Housing should not much increase durable and non durable goods, salaries, even other services e.g. car insurance.
That’s a funny twist.
Sharply rising housing costs are always inflationary and they entail a lot of services that also go up. There are two factors to it: one small one, and one big one:
The small one: High housing costs shift some spending to housing from other things. So maybe some recent buyers/renters will wait for a while longer to replace their car. And that has already been occurring. But it’s just a relatively small number of people who recently bought, and renters who’re strung out (not the renters of choice that just about every new building has been targeting for the past decade).
The big one: There are many more people that benefit from surging home prices. 65% of households are homeowners, and most of them bought their homes a while ago, not recently, and they’re loving the price spike, and they’re spending part of it (home = ATM with big fees). And the 10 million or so mom-and-pop landlords benefit not only from higher home prices, but also from rising rents, and they’re going to spend some of it too. So, like I said, rising housing costs are very inflationary. No way around it. Which is why the Fed is so frustrated with them.
So frustrated with them…yeah perhaps a case of buye’s remorse after helping with getting mortgage down to lowest in history and to buy up MBS like nobody’s business..all for what? Because people weren’t temporarily buying houses during a lock down when the whole world was standing still…and now to be frustrated and still pointing to only supply as the cause for stubborn high housing cost…
Man, whatever positive thing people will write about Pow Pow well into the future…let’s not forget this as part of his legacy in the footnote.
BREAKING: Arsonist “Frustrated” By Fire’s Persistence, Sources Say
You said it much better than I tried to, not wordy and still to my point…
Btw, I got the world’s smallest violin for Pow Pow, arsonist needs love too when they are frustrated…
Wolf, can you please explain why food and energy are excluded? I understand they can be volatile, but to me volatility isn’t a reason to exclude them. We all consume food and energy every day of our lives. Use a moving average or something.
That’s like saying the weather today is perfect, excluding rain and heat.
If you’re trying to assess the medium-term underlying trends, volitile food & energy prices are noise rather than signal.
Consider that on average over the last 50 years, the price of oil in gold has remained remarkably stable.
CCCB,
They’re NOT excluded from the overall inflation measures. But to see underlying inflation, you need to look beyond items that are dominated by volatile commodities markets.
Overall PCE inflation, including food and energy: +2.2% driven down by the plunge in energy prices. Core PCE, without food and energy: +2.7% as a reflection of underlying inflation.
For a long time don’t know where I heard the phrase so goes housing so goes the economy . The GFC with the massive drop in housing prices regardless of the reasons behind the drop was devastating to many that had to move for job reasons. I moved states in 2009. Was not a pretty sight from a housing sales point . Deflation in housing is not something I want though I don’t spend my “home equity “ though tempted when the 3 percent mtgs appeared . Inventory in my small neighborhood is 3 out of 150 homes they are 15 years old . Upper middle class . All retirees downsizing . Prices are below new build costs. PCE core rising did not hit the headline thank goodness for Wolf!
Are you guys seeing sales on durable goods? I’m feeling like I can actually see the dip in the green durable goods trend. I’m about to buy something I’ve been waiting for before the prices go back up. Get drunk and sail on.
@Biker,
It amazes me how many people take on loans on their home equity, some to the very hilt every few years. Loans are money creation, and that is inflationary.
Why does a price index have a % as the y axis?
Because it measures inflation = “rate of change.”
Prices are a “level.”
I also publish-price level indices, in addition to rate-of-change indices, but not for the PCE data (because it’s kind of irrelevant because the only reason we look at PCE is because the Fed uses it). I publish them for the CPI data, which is the main index we have. you can get the price-level-indices here, including by detailed category, such as “used vehicle CPI”:
https://wolfstreet.com/2024/09/11/beneath-the-skin-of-cpi-inflation-core-cpi-again-accelerates-month-to-month-fueled-by-hot-core-services-cpi-durable-goods-prices-drop-further/
Thanks for expanding on that.
Powell is frustrated…
Powell took a dump right in the middle of the street, a 50 basis dump. Now the flies are coming out, to feast on his crap offering.
But in all honesty his job is impossible, he’s just swinging in the dark hoping he gets lucky…. the noble chair-man.
I can see it in my head, picturing Pow Pow staring at a poster of Volckler, hoping to be remember as the one that conquer inflation just like his hero, without falling in the same trap as his hero did…
As these numbers are starting to trickle out and inflation is heading back up….Pow Pow can imagine Vockler looking at him with contempt..
My guess is that pretty soon, Powell will come out and say inflation is transitory, both in up and down directions. (All FED bankers will cheer for him at that meeting)
Then he will be eligible for a Nobel Prize for figuring out inflation is transitory in BOTH DIRECTIONS!
AA.- it IS transitory in both directions, as long as the supply of fresh balloons to replace the burst ones doesn’t run out…
may we all find a better day.
Powell’s legacy will be transitory inflation that caused the largest wealth divide in the history of the country.
Bullshit ,they printmoney inflation up,they remove money inflation down . Interest rates up inflation down ,easy peasy . THERE NUTS ARE IN A VISE .
WSJ headline today:
“Fed’s Preferred Inflation Gauge Cooled in August…The PCE index rose 2.2% from a year earlier, below expectations.”
Why?
“Why” is the WSJ posting bullshit headlines to manipulate people? I dunno. Ask them. But they do.
“Fed’s Preferred Inflation Gauge Cooled in August” is bullshit. It’s just wrong. The Fed’s preferred inflation index is the “core PCE price index” which accelerated to 2.7% today. This is the Fed’s yardstick for its 2% inflation target.
The overall PCE price index is what decelerated to 2.2% (energy costs plunged, food rose slowly)
RTGDFA.
OK, we’ve established that the WSJ and FT are wrong. Just in case anybody is compiling a list of headlines today that are wrong, here’s another one:
Yahoo! Finance “Dow gains, Nasdaq falls as Fed’s favored inflation gauge cools”
The media lies about anything and everything, it’s how their owners try to fleece the masses, fight phony wars, take fake vaccines, etc. Getting you to believe their lies is their primary business.
It’s why when a guy becomes a billionaire he often buys a media outlet, even a hopelessly unprofitable one. He knows by brainwashing the masses he can more than make up for the losses the media outlet incurs.
It’s pervasive if not ubiquitous! Google ai summary and a long list of abc news, etc.
Great example of media censorship, distortion, manipulation, stupidity, inaccuracy, propaganda, hype, etc.
Google, before it was totally broken and useless, used to spit out a metric for search results, like fed bullshit results equal 10 billion — but, that was phased out because the ai results that are twisted into garbage are so much better.
I can hardly wait for the entire ai decade ahead!
I’ve done tons of ridiculous research for decades, realizing it’s all about somebody selling a narrative — doesn’t matter if it’s the Fed, politicians, corporations or media companies — 99% of it is propaganda that hypes something.
You can see this clearly in the trend with substack and YouTube with a tsunami of people selling information, as if it has value — the words and opinions of special people are worth extra cash, because whatever bullshit narrative they sell, it resonates with throngs of brain dead buyers.
In that light, it’s amazing that Wolfstreet is free and actually provides analysis that’s unavailable from all these platforms that are getting stories totally wrong!
The FT, WSJ serve as reminders that journalism is totally dead and its ai replacement is going to be like living in the USSR — but why? How did we get here?
There’s actually an interesting blog going on at Malden economics about this media distortion story — fits right into this topic. They’ve been in this specific topic for like three months.
Just curious and sincere question:
Do you think FED made a mistake by declaring victory over inflation and cutting rates by 50bps instead of 25 ?
You are printing articles upon articles which says inflation is not going down but FED says otherwise hence.
Thank you.
Powell was VERY careful to point out REPEATEDLY that the Fed is NOT declaring victory. It’s not “mission accomplished,” he said. There is still aways to go he said, and there are risks to the upside for inflation, etc. etc., but there has been substantive progress on inflation, it’s dropped much closer toward the target, etc.
You really need to listen to the press conferences. The “victory over inflation” is Wall Street media hype BS. And if that’s all you read, that’s all you know.
“Why”?
The WSJ owned by Murdoch is just the print version of FOXNEWS.
Housing inflation seems to be tied to baby boomer cash purchases and retirement nest eggs, then, higher wages and incomes for others, who fall into Wealth Effect amplified cohorts — which might include any age group that’s been really lucky with crypto or ai speculation.
The remaining population that wants a house, even after a wage bump, is unqualified and unlikely to get into the homebuyer race.
The winners in this economy can keep buying at higher prices, because inflation doesn’t materially impact them — the losers are screwed in multiple ways as they fall behind.
This trend is unlikely to disappear and seemingly will add to ongoing housing inflation and supply constraints. Even as inventories rise, the winners will compete for homes falling in prices, outbidding losers, who can’t afford to play.
I think that process will be slow, steady and stable — slow growth, weak sales, increases in inventory and prices that stay slightly elevated.
As an added bonus, any sort of down payment assistance for the losers will be meaningless, because home prices will be beyond reach for losers.
Fed blurb from October 2014 fyi:
“ Residual seasonality for market-based core PCE price inflation in the second three months of the year also becomes negligible in the current-vintage data. However, even in the current-vintage data, market-based core PCE inflation is typically about 1/4 percentage point lower than average in the second half of the year. All told, based on both initial and revised estimates, core and market-based core PCE inflation tend to be higher than average in the first half of the year, and lower than average in the second half of the year.”
It is going to be VERY noisy October with the next Fed meeting not until after the Election Day and plenty of economic figures to be reported (and revised). Expect plenty more stupid headlines and spins from the media.
It might be a good time to find a good book to read or take that outback camping expedition out of range of any cell towers.
I wonder which candidate the black swans are voting for?
I just spent 5 days in the hills hunting wild boar with zero cell signal, no TV, no Internet. It was heaven, and I would give anything to go back there until after the election lol.
YoY housing PCE has not been <5% in at least two years. Ouch.
That's what entrenched inflation looks like.
“This inflation is transitory”
They have no idea what’ll happen.
I expect they’re worried about recession, but then we also still have some inflation.
My gut says inflationary forces die hard when everyone has been programmed to ignore risks and expect bailouts/easy money for almost 15 years.
Are we just seeing the wilfully blind running for the cliff edge?
Well, that’s one hell of a long run way to the cliff…we have been seeing the willfully blind running towards the cliff edge, either the blind chasing after housing, stock, Crypto and so far the only people fell off the cliff edge or looking like the fools for the most part are the cautious one staying on the side line…exception to this are maybe Gamestop APEs, SPAC chasers…etc
Maybe need to suck it up and accept this is the new F up reality and for the cautious to throw in the towel…
“Stock prices have reached what looks like a permanently high plateau.”
Economist Irving Fisher, Oct. 1929
Re: fuel prices. Can there be a recession with oil, an input to everything, under 70$? Since auto gas use is relatively inflexible, a price drop frees up money to be spent on stuff that is discretionary.
The Fed and our immigration policy has conquered wage inflation, so now it’s full speed ahead.
Ports strike might lift inflation, but exogenous strikes might deflate it.
I learned Today: Read Wolf first then the other rags and you feel so much superior in knowledge.
It feels like corporations are just setting arbitrary prices at this point. They are eating our lunch right in our faces. I wonder if it will ever occur to the fed that we cut too soon.
The big corporations are doing their Daniel Day Lewis impression from There Will Be Blood, “I drink your milkshake!” Is this a great country or what?
I recommend reallocation of your misfortunes to the R2K.
It’s about to ascend.
Markets do what markets do with Wall Street money. The whole R2k could be purchased by just a few tech trillion dollar companies . If memory serves me correctly and if media publishers were truthful 40 percent of R2k companies loose money . But the index could easily rise since those 40 percent folks rely on higher cost floating rate notes .
So is it going to take a Recession to stomp out Inflation or will JPow get his Soft landing? I think the former.
Core PCE accelerated because of base effect.
Lets try to be honest, folks.
Powell has to know that decreasing the Prime rate is not going to lower housing costs. The last 4 years should be example enough. If he really wants that “stubborn” housing to drop the rates are going to have to get up in the 7-8% range and stay there for a couple years.
The unemployment numbers are a feint, and he is going to regret it.