U.S. Core PCE Price Inflation Is Moderate in January; Real Spending Declines

• Price index held in check by slower gains in services prices.
• Real spending reverses December rise.
• Disposable income surges and savings rate jumps.

The PCE chain price index rose 0.3% during January, the same as in December, after a 0.1% in November. The y/y rise eased to 2.5% from 2.6% in December. The price index excluding food & energy rose 0.3% last month after unrevised gains of 0.2% in December and 0.1% in November. The y/y change fell to 2.6% last month from 2.9% in December.

Durable goods prices rose 0.3% (-1.2% y/y) in January, after a 0.5% December decline. Motor vehicle & prices rose 0.9% (-0.1% y/y) following a 0.4% rise. Recreational product prices improved 0.7% (-1.8% y/y) last month, after falling in each of the prior five months, while home furnishings & appliance costs edged 0.1% higher (-2.5% y/y) after a 0.9% December decline.

Prices of nondurable goods strengthened 0.6% (1.6% y/y) last month after rising 0.4% in December. Gasoline & oil prices led the increase and jumped 2.0% last month (0.4% y/y) after a 3.7% rise in December. Clothing prices declined 1.2% (+1.1% y/y) after a 0.2% gain. The cost of food & beverages rose 0.3% (1.6% y/y) after rising 0.2%.

Services prices increased 0.2% (3.4% y/y) in January, after rising 0.4% in December. Housing & utility prices rose 0.3% (4.3% y/y) for a second straight month, and services prices excluding energy & healthcare increased 0.4% (4.0% y/y) last month after the same increase in December. Recreation services costs strengthened 1.1% (3.4% y/y) after two straight months of 0.3% increase. Healthcare prices eased 0.1% (+1.8% y/y) after a 0.3% increase. Transportation prices fell 0.4% (+4.0% y/y) after surging 1.8% in December while hotel & restaurant prices rose 0.4% (3.0% y/y) following a 0.1% uptick.

Personal consumption expenditures (PCE) eased 0.2% (+5.6% y/y) after rising 0.8% in December, revised from a 0.7% gain. A 0.2% increase had been expected in the Action Economics Forecast Survey. When adjusted for price changes, PCE fell 0.5% (+3.0% y/y) last month, reversing December’s 0.5% gain.

Real spending on durable goods weakened 3.4% (+5.3% y/y) in January, after a 1.8% December increase. Real spending on motor vehicles declined 6.0% (+6.7% y/y), after a 2.3% December increase. Real outlays on furnishings & appliances fell 1.5% (+5.1% y/y) last month and reversed December’s 1.6% gain. Real spending on recreational goods & vehicles weakened 2.9% (+5.2% y/y) last month, after a 1.9% December increase. Spending on “other” durable goods fell 0.4% (+2.1% y/y) after strengthening 1.0% in December.

Nondurable goods spending in real terms fell 0.8% (+2.0% y/y) in January following a 0.7% gain. Real clothing and footwear purchases improved 0.3% (0.6% y/y) last month, following a 0.7% gain in December. Real food & beverage purchases were off 0.6% (+1.6% y/y) and reversed all of December’s increase. Real outlays on gasoline & other energy products improved 0.6% (2.8% y/y), after strengthening 1.7%. Real spending on “other” nondurable goods declined 1.6% (+2.5% y/y) last month, following a 0.6% rise.

Real spending on services edged 0.1% higher (2.9% y/y) in January, following a 0.3% December increase. Real spending on housing & utilities rose 0.5% (1.6% y/y) last month, after increasing 0.6%, while real health care spending rose 0.1% (4.4% y/y) following three straight months of 0.2% increase. Real spending on food services & accommodations gained 0.5% (1.8% y/y) after easing 0.1% during December. Real spending on financial services & insurance eased slightly (+2.4% y/y) after a 0.1% improvement. Real spending on transportation services rose 0.3% (5.3% y/y) in January, after strengthening 1.9% in December. Recreation spending fell 0.5% (+2.7% y/y) after rising 0.6% in December. A 0.2% rise (3.1% y/y) in spending on “other” services followed a 0.5% improvement in December.

Personal income rose 0.9% (4.6% y/y) in January, after an unrevised rise of 0.4% in December. A 0.4% gain was expected. Wages & salaries rose 0.4% (4.5% y/y) last month, the same as in December. Rental income improved 1.4% (5.8% y/y), after rising 0.5% in December. Proprietors’ income moved 1.5% higher (5.5% y/y), following a 0.7% gain in December. Income from assets rose 1.1% (0.5% y/y), after rising 0.3%, and current transfer receipts strengthened 1.8% (7.4% y/y) in January, after rising 0.3% in December. Government social benefits also rose 1.8% (7.6% y/y) in January, after a 0.3% improvement in the prior month.

Disposable personal income increased 0.9% (4.4% y/y) in January, following a rise of 0.4% in December. After adjusting for price changes, disposable income rose 0.6% in January following two months of 0.2% increase. The y/y increase has slowed to 1.8% from 4.7% at the end of 2023.

The personal saving rate rose to 4.6% in January, after declining to 3.5% in December. It began the year at 5.5%. Personal saving rose 32.2% (-13.6% y/y) in January, after falling 8.5% in December.

The personal income and consumption figures are available in Haver’s USECON database with detail in the USNA database. The Action Economics forecasts are in AS1REPNA.

Supply and Demand Drivers of Global Inflation Trends from the Federal Reserve Bank of New York can be found here.