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At least for the time being, can the usual suspects stop talking about U.S. inflation even starting to cool down? Especially since this morning we just got the third official report this month (see also here and here) showing that it’s been heating up lately?

By the way, the usual suspects now include not only spin-happy partisans like incumbent U.S. presidents, but Federal Reserve Chair Jerome Powell, the federal government’s chief inflation fighter. Earlier this month, he ventured that disinflation (not an absolute reduction in prices but a slower rate of price increases) is “under way.”

In fact, the new figures – for the price index for Personal Consumption Expenditures (PCE) in January – are those to which the Fed pays most attention.

And it’s critical to point out that it’s not just that these latest inflation numbers were worse than the expectations of investors and economists (which they were). They actually worsened in real world terms.

The pickup was clear from the headline PCE results, which reported that consumer prices by this measure jumped by 0.6 percent sequentially. That was both the biggest monthly number and the fastest sequential acceleration (from December’s 0.2 percent) since the identical figures last May.

And the pickup was clear from the monthly core PCE statistics, which strip out food and energy prices because they’re supposedly volatile for reasons having little to do with the economy’s underlying prone-ness to inflation. In January, this measure of inflation also rose by 0.6 percent, the greatest increase since last August. In December, core monthly PCE worsened by 0.4 percent.

Further, as if this trend wasn’t bad enough, revisions generally showed that monthly PCE inflation was hotter in prior months than first judged. For the headline measure, October’s increase stayed at an already upgraded 0.4 percent, November’s was revised up from 0.1 percent to 0.2 percent after going unrevised in last month’s report, and December’s initially reported 0.1 percent rise is now pegged at that aforementioned 0.2 percent.

For the core measure, October’s initially reported 0.2 percent climb stayed for the third straight month at an upgraded 0.3 percent. After going unrevised last month, November’s original 0.2 percent is now seen as one of 0.3 percent, and December’s initially reported 0.3 percent rise was upgraded to 0.4 percent.

These monthly revisions, moreover, were telegraphed in advance yesterday by the U.S. Commerce Department. In yesterday’s report on fourth quarter economic growth, the headline PCE inflation figure for that three-month stretch was upgraded from 3.2 percent to 3.7 percent at annual rates, and core PCE inflation was upgraded from an annualized 3.9 percent to 4.3 percent. (Most of these results and those below will be revised again next month.)

PCE inflation looks hotter on an annual basis, too. For the headline figure, yearly price increases worsened from 5.3 percent in December to 5.4 percent in January. That’s a good deal lower than the recent peak seven percent figure of last June. But revisions cast a pall over thesr results, too.

October’s annual increase stayed at an upgraded 6.1 percent for the third consecutive time, but after remaining unchanged, November’s originally reported 5.5 percent increase is now pegged at 5.6 percent, and December’s results have been upgraded from a five percent rise te aforementioned 5.3 percent.

The 4.7 percent annual in January core PCE was well off the recent peak of 5.3 percent, recorded last February. But it was up from December’s 4.6 percent, and revisions were troubling, too. After staying unrevised from its original five percent figure, October’s result stayed at an upgraded 5.1 percent. November’s initially reported 4.7 percent first went unrevised and was then increased to 4.8 percent. And December’s increase is nowjudged to be that 4.6 percent rather than 4.4 percent.

Nor did these annual numbers look any better when baseline effects are examined. For example, when annual headline PCE inflation peaked last June at seven percent, that followed an increase between the previous Junes of four percent. The new January read of 5.4 percent follows an increase between the previous Januarys of a much higher six percent. That unmistakably demonstrates that businesses believe they still have plenty of pricing power.

Similarly, when annual core PCE recently peaked at 5.3 percent last February, the increase between the previous Februarys was a mere 1.5 percent – making clear that that 2021-22 increase reflected a great deal of catching up (or more technically, reverting to the mean) from an abnormally weak result between 2020 and 2021 (when economic recovery from CCP Virus-induced slumps was still tentative).

The January annual core increase of 4.7 percent follows a much higher 5.2 percent rise between January,,2021 and January, 2022 – again surely revealing great pricing confidence in business ranks.

As known by RealityChek regulars, results for a single month prove little (even if they’ve been replicated in three different inflation reports).  But single-month results that are multi-month highs are more revealing, especially when supported by baseline analysis.  The more so when they’re accompanied by upward revisions and data (from the same release containing the PCE figures) that consumer spending shot up on month in January. 

That spending is bound to convince businesses that they still enjoy lots of pricing power, and as long as they keep getting that kind of evidence, expect inflation to remain way too high as well.         

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