US: PCE points to an increase in inflation pressure

US: PCE points to an increase in inflation pressure
US: PCE points to an increase in inflation pressure

According to personal income and expenditure data published today; In April, revenues decreased by 13.1%, while expenditures increased by 0.5%, in line with the expectations. The effect of the incentives, which had a sharp increase in the previous month, was effective in the decrease in revenues in April. With the 2021 American Rescue Plan Act, which took effect on March 11, 2021, payments continued, but were at a lower level than March. Unemployment insurance also fell, led by declines in payments from the Pandemic Unemployment Compensation program. Spending on goods decreased by 1.3%, spending on services increased by 0.6%. Personal savings rate declined from 27.7% in March to 14.9% in April. The saving rate increase in March was an abnormal rate caused by incentives, and this normalization is positive for the transformation of revenues into expenditures.   The rate of increase in the PCE price index, which is the indicator used by the Fed for its official inflation target, is 0.7% on a monthly basis and 3.6% on an annual basis. The annual increase in inflation also reflects the base effect carried over to April from last year, so it will be necessary to look at the inflation effect when the data normalizes. However, the normalized inflation rate, which is also revealed by the reduced CPI, is also above the target and the current price effects are likely to continue for a longer time due to costs. A 10-year bond yield exceeding the 1.7 - 1.75% band will reflect pricing that there are some problems in maintaining the inflation anchor, and tapering will become inevitable. The core PCE price index, excluding food and energy, also increased by 3.1% in April compared to a year ago. This is important in terms of reducing volatile items. The Fed is suffering from temporary excess liquidity, and the doves’ hand has weakened on growth and inflation. This tapering will not be rapid and will reflect the normalization phase of an economy that has returned to its pre-epidemic dynamics as key indicators. For the tapering steps to be taken gradually, this year seems appropriate in terms of giving the first signal. Kaynak Tera Yatırım

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