Key inflation metric shows sign of easing

Yahoo Finance Live anchors discuss April PCE report data.

Video Transcript

JARED BLIKRE: Listen, here are three things you need to know right now. We have core PCE numbers for the month of April with a year over year increase of 6.3% and a core PCE increase of 4.9%. Here to discuss those numbers is Yahoo Finance's Brian Cheung.

Brian, a little bit of ho-hum here. But markets seem to be running with it, at least a little bit so far.

BRIAN CHEUNG: Yeah, at least for right now. I mean, look, at the end of the day, Americans and market watchers alike just care about whether or not inflationary pressures are going to abate. And when you look at it, again, on a year over year basis on a headline number, it was indeed a slower pace of price increases in the month of April than in the month of March. And that's because it clocked in at 6.3%. Again, the Street was actually estimating about 6.2%, so essentially in-line, but again, a little bit of a slowdown from the 6.6% pace that we had seen in March.

But look, that's still a positive number. It's still a relatively large number, above where the Fed would like to see it at 2%.

But I'm also looking at a number of other things inside the report, because again, we want to see signs of whether or not other types of price pressures are slowing. And one thing that I was watching was, in addition to just the headline number, you look at spending and also income, personal spending clocking in on a month over month basis at 0.9% between March and April. Then personal income at 0.4% on a month over month basis.

But also take a look at the personal saving rate, very interesting kind bit of this report. It showed 4.4% in terms of saving as a percentage of disposable personal income in the month of April. By the way, that is the lowest rate of saving that we have seen since 2008.

Now, on the surface, just because it's a low rate number doesn't necessarily mean people are saving less, because a lot of stimulus happened. So you can save a smaller percentage. But if you also had more income coming in, your total savings is going to be higher. But at the same time, you wonder if there's a psychological effect of people looking at how much they're saving, which is a lot smaller now than it was about a year ago, and saying, well, is this the time for me to perhaps stop consuming, stop spending so much?

JULIE HYMAN: Just one quick precision here. When we're talking about the savings rate for April, that was the percentage of income saved in that month, correct?

BRIAN CHEUNG: Correct.

JULIE HYMAN: So in other words, it also doesn't account for all of the money that people could have saved and not spent yet, right?

BRIAN CHEUNG: Exactly. But again, I think the point here is-- I mean, you make a very salient point that the level of saving, which is different than the rate itself, is still extremely elevated. But you wonder if there's a psychological effect of people noticing, well, actually, my paycheck, which in many cases, the wage gains are not outpacing the amount of inflation that they're experiencing at the stores. They're now saying, well, maybe it's time for me to start cutting back, which will have, at some point, the effect of what the Fed's trying to do, which is try to tamp down that demand that's been driving a lot of price increases by America's producers.

JULIE HYMAN: Yeah. And there's the so-called wealth effect too, right, where people are seeing their portfolios go down, and that's also affecting spending patterns. Now. PCE, does not have the breakdown by stuff, right? In terms of--

BRIAN CHEUNG: Not like CPI does.

JULIE HYMAN: Not like CPI.

BRIAN CHEUNG: The other--

JULIE HYMAN: And we were talking in the break about the implications for the Federal Reserve. And you said, even if it did have that breakdown, the Fed's really focused on this core, big number. They're not as much focused on the individual components?

BRIAN CHEUNG: Yeah, well, what's interesting is that we normally hear the Fed, as a talking point, make a distinction between headline PCE, which is their preferred measure of inflation, and then core PCE. Again, core strips out the volatile food and energy prices. So it clocked in at 4.9% on a year over year basis in the month of April. But you haven't heard the Fed make that distinction as of the last year or so, right?

They're not saying, oh, well, if you read the core readings, it's actually lower than that. Overall, the headline number and the real, experienced, lived, kind of observations that Americans are making at the store, they're not making that distinction. It's eggs are going up by 10%.

So Jay Powell said, literally a few weeks ago, well, look, everybody reads the inflation reports. We all know that. But he said, quote, "truthfully, this is not a time for tremendously nuanced readings of inflation." That is a way to neutralize any sort of nuanced or very, very kind of myopic readings of these inflation reports.

Either way you cut it or slice it, this April reading likely doesn't change the Federal Reserve's stance, which is we're going to continue to raise interest rates.

JARED BLIKRE: I think for years, if not decades, everyone, or market participants, economists, have hung on every single word that the Fed says that we're looking for nuance, because Jay Powell has said, and everybody else is saying, we're going to hike 50 basis points. We're engaging in QT.

People are thinking, well, is he going to blink? And market participants, I think, were not prepared for the fact that the Fed is resolved. And I think that's what you're trying to hammer home here.

BRIAN CHEUNG: Yeah, well, when it comes to just the path that the Fed laid out, keep in mind that Jay Powell, in the minutes that we got from the last meeting the first week of May-- again, we got the minutes of that just two days ago. It reinforces that there is a coalescence among Fed policymakers four two 50 basis-point moves in their next two meetings. That's in mid-June and then late July.

The Fed made that messaging three weeks ago. So they essentially locked themselves into this policy move and policy stance. We've heard all the other Fed officials that have spoken since then basically say they're in line with that policy.

So from that standpoint, the Fed is very clear on saying, this is what we're going to do in the future. And whether or not inflation came in today on a headline basis at 6.3% on a year over year basis or 6.5% or 6.6%, it was going to be the same story either way.

JULIE HYMAN: To echo the guy here in New York City, the inflation is too damn high, however you want--

JARED BLIKRE: Everything's too high.

BRIAN CHEUNG: Exactly, yeah. You have to hit back the desk as you say that.

JULIE HYMAN: Yes, of course.

BRIAN CHEUNG: Maybe that's what Jay Powell should do at the next press conference.

JULIE HYMAN: He's a pretty cool customer.

JARED BLIKRE: He needs a gavel at the podium.

JULIE HYMAN: It's hard to see him doing that.

JARED BLIKRE: Why not?

BRIAN CHEUNG: Not to rein in the reporters, you know? No one chains this guy.

JULIE HYMAN: OK, all right.

JARED BLIKRE: All right.

JULIE HYMAN: Thanks so much, Brian.