Gasoline plunged, durable goods fell. Inflation still hot in services: housing, insurance, healthcare, transportation (incl. auto services). Food inflation simmers.
By Wolf Richter for WOLF STREET.
The PCE price index released today boils down to this, in October from September:
Gasoline and other energy products plunged;
Durable goods, dominated by motor vehicles, dropped for the fifth month in a row;
Food prices keep rising from already very high levels;
Housing (rent), insurance of all kinds, healthcare, transportation services (incl. auto repair!) were hot.
Core services remained in the same hot range in which it has been bouncing up and down in for months.
The core PCE price index, which excludes food and energy, decelerated to an increase of 0.16% in October from November, from 0.31% the month before, which had been the highest since March (green). The three-month moving average remained at 0.20% (red).
Year-over-year, the “core” PCE price index decelerated to 3.5% (red line). The overall PCE price index, driven down by energy, decelerated to 3.0%.
The core Services PCE price index (all services except energy services) has been bouncing up and down all year on a month-to-month basis. In August, it had decelerated to the slowest increase since 2020; in September it had spiked to the biggest increase since January; and in October, it decelerated again, increasing by 0.21%. There was a consistent deceleration earlier in the year, but the last four readings took turns spiking and dropping:
Year-over-year, the core services PCE price index decelerated to 4.6%. We’ll get into the major components of core services in a moment.
The PCE price index for housing, which is composed of various rent factors, rose by 0.42%, a deceleration from the spike in September, but an acceleration from August.
As you can see in the chart below, all the ups and downs from March on have been confined to the same range, and there hasn’t been much progress.
The big progress came early in the year, when the index dropped from its previous cluster around 0.7% to the current cluster of the past 10 months of around 0.45%.
The sudden lack of progress was confirmed by the six-month moving average which has been essentially unchanged for the past three months at around 0.48% after dropping substantially from March through August. This is close to 6% annualized rent inflation.
Year-over-year, the PCE price index for rent decelerated to 6.9%. The year-over-year deceleration is largely driven by the sharp month-to-month deceleration earlier this year.
The major “core services” categories.
Housing, insurance, healthcare, and transportation services (includes auto repair and air fares) remained hot on a month-to-month basis.
The financial services index plunged by 0.88% for the month, but it’s very volatile, including a 1.9% month-to-month spike in July. This -0.88% in October contributed to the deceleration of the core services index.
On a year-to-year basis most services remain in hot territory. These are the items that Powell has been talking about a lot during the FOMC press conference. This is where inflation has gotten entrenched.
Core services categories
% MoM
% YoY
Includes
Housing
0.42%
6.9%
rents
Non-energy utilities
0.25%
5.4%
water, sewer, trash
Health care
0.50%
2.6%
Physicians, outpatient, hospital, nursing care, dental, etc.
Transportation services
0.75%
4.7%
auto repair & maintenance, auto leasing & rentals, public transportation, airfares, etc.
Recreation services
0.20%
5.4%
concerts, sports, movies, gambling, streaming, vet services, package tours, etc.
Food services, accommodation
0.01%
4.7%
meals & drinks at restaurants, bars, schools, cafeterias, etc.; accommodation at hotels, motels, schools, etc.
Financial services
-0.88%
4.1%
fees & commissions at banks, brokers, funds, portfolio management, etc.
Insurance
0.46%
5.6%
insurance of all kinds, including health insurance
Other services
0.11%
3.5%
a vast collection of other services
Durable-goods PCE price index fell by 0.27% month-to-month, the fifth month in a row of declines; and by 2.2% year-over-year, also the fifth month in a row of declines
Durable Goods yoy
-2.2%
Motor vehicles & parts YOY
-1.5%
Furnishings and durable household equipment
-2.2%
Recreational goods and vehicles
-4.3%
Other durable goods YOY
1.4%
You can see how the huge spike in durable goods prices during the era of shortages is now slowly getting worked down some.
Prices of durable goods are still high but are coming down from the price spikes of 2021. The dynamics are driven by used vehicles, whose prices have been dropping since the peak at the end of 2021, though they’re also still way too high:
Food inflation keeps simmering. The PCE price index for food and beverages purchased at stores and markets rose by 0.25% for the month and by 2.4% year-over-year from already very high levels. There was a brief period earlier this year, when food prices dipped a little, but starting in the summer, the month-to-month increases off these high levels resumed.
This chart shows the index value, not percent change:
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