The 6-month core services PCE inflation index, accelerating since August, hit 3.7% annualized. Chip prices and software wreak havoc amid consumer electronics.
By Wolf Richter for WOLF STREET.
The PCE price index, which the Fed favors for its inflation yardstick, spiked by 0.66% in March from February (+8.3% annualized), the worst spike since mid-2022 at the peak of the inflation surge.
Inflation has been accelerating since mid-2025. In each of the three months of December, January, and February – so before the war and before the energy price spike – the PCE price index had already surged by 4% to 4.6% annualized (black circle in the chart). The March spike is on top of that acceleration (blue line). And it was energy, but not just energy.
Year-over-year, the PCE price index jumped by 3.5%, the worst since May 2023 (red line). The Fed’s target for the year-over-year measure is 2.0%, and PCE inflation has been moving away from it relentlessly for the past 10 months, and the energy price spike came on top of it.
The energy PCE price index exploded by a historic 11.6% in March from February (+272% annualized).
March pushed the year-over-year increase to +14.4%, from a negative reading in February. This is what a price shock looks like.
Note that the US is the largest crude oil and petroleum products producer in the world, a large exporter of crude oil and petroleum products, including gasoline and diesel, and gets very little crude oil from the Strait of Hormuz. The gasoline whose prices spiked in March had already been in tanks at gas stations or at refineries or in transit, purchased at the low February-and-before prices, and that price spike went straight to profit margins of oil companies, refiners, and gasoline retailers.
It was not just energy.
Core services, which account for about 60% of the PCE price index, jumped by 0.32% in March from February (+3.9% annualized).
The six-month core services index has been accelerating since August. In March, it jumped by 3.7% annualized, the highest in a year. The six-month average shows the recent trend beyond the month-to-month squiggles.
Year-over-year, the core services index accelerated to 3.3% (not shown).
The core PCE price index, which excludes energy and food, jumped by 0.29% in March from February, or +3.6% annualized, after three months in a row of 4%+ annualized readings (blue in the chart).
This pushed up the 6-month core PCE price index to +3.7% annualized, the worst since June 2023. The six-month index reflects the more recent trend, and that trend has been going in the wrong direction.
The year-over-year core PCE price index (red in the chart) rose by 3.2%. The Fed’s target for this measure is 2.0%. And being a “core” measure, it does not include the gasoline price spike.
Durable goods prices jumped month to month by 0.42% (+5.1% annualized).
Of the major categories, many had declines or only small increases:
Declines or only tiny increases:
- Appliances: -2.3%
- Cars & trucks: +0.07%
- Motorcycles: unchanged
- Auto parts and accessories: +0.1%
- Furniture and Furnishings: -0.5%
- Video & audio equipment: -0.02%
- Sporting equipment, supplies, guns, ammo: -0.2%
- Books: -0.4%
- Phone & related communication equipment: -0.8%
But some had huge increases, such as computers due to spiking chip prices due to the AI investment bubble; software subscriptions that got jacked up; and jewelry as jewelers passed on much higher gold prices.
Large increases:
- Glassware, tableware: +0.5%
- Tools and equipment for house & garden: +1.2%
- PCs, laptops, tablets, driven by the surge in chip prices (see AI): +1.5%
- Computer software & accessories (jacked up subscriptions): +4.0%
- Pleasure boats & aircraft: +0.4%
- Jewelry, passing on the much higher gold prices: +1.2%
- Musical instruments: +1.4%
- Bicycles & accessories: +0.4%
Food prices dipped by 0.1% in March from February (-1.7% annualized), after three months in a row of substantial increases (blue)
Year-over-year, the index decelerated to +1.7% (red).
Inflation in the entire US economy is rocking and rolling.
The above measures are tracking consumer price inflation; inflation in goods and services that consumers are paying for. But businesses and governments also face inflation for the goods and services they purchase.
The inflation measure that tracks inflation in the overall US economy for consumers, businesses, and governments is the GDP “Implicit Price Deflator,” also released today by the Bureau of Economic Analysis as part of the Q1 GDP data.
This overall inflation rate has been running hotter than consumer price inflation: In Q1, it increased by 3.6% annual rate, after increasing by 3.7% annual rate each in Q3 and Q4 (blue line).
This is a quarterly measure, and so the energy price spike in March was counterbalanced by the plunge in January and the smaller increase in February .
Year-over-year, inflation in the overall economy in Q1 of 3.3% matched inflation in Q4.
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Media hails Jerome Powell as a hero for supposedly standing up to Donald Trump, a flattering myth that won’t age well.
In reality, he is on track to go down as the worst chairman in Fed history: the man who destroyed price stability, stripped American workers of roughly 40% of their purchasing power in just five years, and inflated asset prices to the point that housing is now out of reach for anyone but the wealthy. All of it fueled by a balance sheet ballooned to $8 trillion, complete with legally dubious forays into junk bond buying.
His epitaph practically writes itself: “inflation is transitory.”
Had the Fed stuck to its mandate and delivered price stability, it wouldn’t be politicized today. Instead, Powell seemed intent on dragging it into mission creep climate policy as well.
The result is outright failure, an incompetent stewardship that will be remembered for damage it left behind.
Powell: Inflation is transitory.
Inflation: Powell is transitory.
Who will have the last laugh?
Agree. The asset bubble Powell helped inflate with mega QE is too insidious and damaging to be justified or forgiven.
No mention of the massive US deficit. Hard to take this post seriously.
Chicken and egg. If Congress had borrowed $5 trillion from March 2020 through March 2021 without that QE, rates would have blown out, and MAYBE imposed some discipline on Congress.
The Fed’s job is not to enable reckless spending by Congress.
“No mention of the massive US deficit. Hard to take this post seriously.”
So over in the articles on this site that cover us the US deficit and debt out the wazoo in great detail are we going to find a comment from you that says: “No mention of acceleration in the PCE price index. Hard to take this post seriously.”?
Sometimes I wish this site had a mute button. Like NextDoor.
Oh Mark, you goofball. Last chart, you goofball: Debt-to-GDP.
And here are the deficit and debt articles. All you have to do is read them:
https://wolfstreet.com/category/all/debtor-nation/
It wouldn’t be politicized??? Yu mean the Jerome Powell President Donald J Trump nominated to the chair??? LMFAO
“…housing is now out of reach for anyone but the wealthy.” I’m going to channel my inner Wolf here, this is total BS.
A family member of ours just bought their first home. Their household income is about $60K and were able to purchase a home with an FHA loan putting down 3.5%. The home is 3 BR, 2 Bath, single attached garage. It cost $140K.
But…but…but…housing is unaffordable!!!!
But…but…but…the boomers took our wealth!!!!
But…but…but…the millennials are outbidding each other!!!!!!
But…but…but….private equity owns all the homes in America!!!!!
Come on, open your eyes.
I wonder where ?
IN my city, median household income is 90K but median home price is almost 900K.
The home prices almost double in last 5 years ( 80% or so, if not 100% up ).
The wages just didn’t keep up.
Jerome Powell has locked out a whole generation of Americans of homes to live in.
People would not ever forgive this. There was no need to keep buying MBS when the housing market was on fire.
where i live my friend sold mobile house 3 bdr.2 bathroom 1300sqf for $395k .and rent lease there is $800 a month.
i dont know where you can buy house for 140k.not a lot of places in us
It ballooned to almost $9 trillion before he started QT.
I agree with you. No matter what the “unknowns” of COVID in early 2020, printing $3 trillion in 3 months was inexcusable. As was continuing to print for 16 months after it was clear the economy was overheated.
So when can I expect rate cuts?
Howdy Gomer. SHAME SHAME SHAME. But could the FED really be that stupid??? You bet it can…
Who wants the DOJ up in their business? I don’t know about cuts but CPI will probably need to explode before they’ll dare to raise.
Exactly. Fed will do opposite of what is correct based on past performance
I’m not sure how this works, but it’s a problem…
While a lot of AI data centers are not even close to done on any level, I’m surprised some are not using inflation as a reason to cut back on those investments. I suppose it is all part of all of this being transitory and that AI will live up to the hype or something like that. I’m by no means anti AI but it is no way what it is sold to be and I would think capex and lack of revenue might catch up. At least in the early days of Lyft and Uber there was light at the end of the tunnel for cash burn. Doesn’t help AI is funding a lot of the build out with debt.
I think it’s more an example of the phenomenon that people would rather be really wrong with everyone else than a little bit wrong by themselves. If they jump on the AI train, even if it’s a bubble that bursts massively, they can say “Hey, everyone else was doing it!”
Yep that seems to be why the big tech CEOs are jumping in. You’ll notice that many of their data centers are being built with 3rd parties that they only have to pay IF the data center gets completed. So it’s like a data center “option”. So they’re talking the hype but can walk away without imploding when the bubble bursts, unlike the data center companies.
The Fed’s infamous “Symmetric 2% Inflation Target” is proving correct!
Looking at Wolf’s graphs…
Inflation was below 2% from 2008-2021.
Inflation is above 2% since 2021.
So inflation IS symmetric about 2% … like a sine wave centered on 2021…
Powell’s NADIR: Not A Doubt: Inflation’s Reignited!
Glad I got into TIPS. Just gotta bail out in time, which will be tricky.
By tying any potential future tightening to market-based inflation expectations (and not realized inflation) Powell gave Wall Street institutions a metric they could easily game.
If you’re Goldman Sachs, you’d rather take a small loss on TIPS to keep expectations “well anchored,” while artificially loose monetary policy drives 30% annual gains in their equities investments.
But the Fed isn’t doing that. They’re looking actual inflation rates. And to see where they might be going in the future, they’re also looking at all kinds of other stuff, such as inflation expectations in various forms. But the primary focus are the actual inflation rates.
What happened? Everything was great at the FOMC conference, literally, yesterday.
No it wasn’t. Inflation was a huge concern, both in the statement and in Powell’s press conference.
40 Trillion in debt and accelerating.
Nobody seriously believes this will ever be paid back by increasing revenues or reducing spending. Both approaches look to political non-starters.
Since there is no other alternatives, (bondholders beware) this debt will simply be inflated away. Better buy your hard assets while you still can, after all, that’s how the wealthy are going to ride this out.
Isn’t the spending outpacing the inflating?
This tactic won’t work, unless you are cool going the route of Venezuela
Haha..one article is “ Inflation in the Entire US economy Is Rocking and Rolling” and the previous one says GDP is up 2.5.
Maybe the 2.5% GDP increase is that rocking and rolling inflation. Wheels spinning, round and round, not really going anywhere. But it sounds nice (2.5% increase).
Let’s ask Bozo the Clown what the inflation rate is.
RTGDFA. 2.5% GDP growth is adjusted for this big inflation metric, 3.7%, see last chart in this article here. RTGDFA Google RTGDFA if you don’t know what that means.
Not adjusted for inflation, GDP growth was 5.6%, third chart in the GDP article. RTGDFA. This shit is just exasperating.
Those Asian refineries which supply California with significant amounts of refined fuel get their crude thru the Hormuz straits. Last tankers pre Iran war are docking in California right now. Very little in the pipeline for May onwards. Anyone have thoughts about the likely impact to California, Nevada, Arizona and the U.S. as a whole real shortages of Fuel?
LNG pipeline from Texas to AZ is gaining some steam. In 2005, Yuma was about to build a refinery but was stopped. Now AZ needs to deal with water because CA continues to dump water out to the ocean.
My opinion is AZ goes back to the table about the water cuts, refuses to, and shuts off all electricity to CA. That is unless the FED gets involved and poses injunctions on CA for shutting business to the state down. I mean it is as you pointed out issues for all south western states.
AZ also discovered their air quality is poor due to geography. Mexico and the jet stream are more involved than AZ.
We’re sitting on 210k of I-bonds since 2020 because I didn’t buy the transitory line then, nor do I now.
Can’t say they’ve done much better than any other treasury asset over that time span, but they haven’t done worse either. At least tax wise they are helping. . .for now.
I was going to roll some of the early ones with a 0% fixed rate this year, but now that inflation is raising I just added to it I guess.
What a dumb investment product, lol. You get to feel screwed no matter what inflation does.
Think Jerome slipped on a banana peel on the way out.
🍌
He crashed into some buckets holding the inflation back.
🤣