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Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were 0.2% in January and 2.1% year-over-year through January. Excluding volatile oil and food costs from the readings, “Core” PCE price index for January was unchanged and 1.4% YOY through January. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these two items, and the Fed’s zone for reasonable inflation is 1-2% per year. At 1.4%, Core inflation is within their comfort zone, as confirmed by the Ben Bernanke’s remarks last week that inflation is likely to be subdued for some time, and the fact that PCE inflation has been stable since summer 2009.

Personal income increased 0.1% percent in January, and wages were up 0.4% since December. The household savings rate dropped from 4.8% to 3.3% but not due solely to consumer spending. The larger reason for less savings is from a 0.6% decrease in disposable income (which is income adjusted for inflation and taxes). The 12 month average savings rate is 4.2% which is well below the May 2009 all-time record of 6.9%. Below are all key details from the Personal Income & Outlays report.

The US Consumer Price Index, which measures inflation at the consumer level of the economy, increased 0.2% in January and 2.6% year-over-year through January. Excluding volatile oil and food costs from the readings, “Core” CPI for January decreased -0.1% and increased 1.6% YOY through January. You can automatically create charts and download historical CPI data by scrolling to our data section on the right side of the site, or visiting our Data page.

Consumer inflation for the month is within the Fed’s comfort zone of 1-2% and was actually less than expectations. If you click on the ‘All CPI, Month’ link in our Data section, it will display a chart at the top of the section where you can see how the volatility of food and especially energy prices causes inflation swings month to month. When this happens traders react accordingly. Rates are tied to bond trading and bonds normally rally on low inflation news (pushing rates down), but today markets are also contending with the Fed’s Discount Rate increase from .5% to .75% last night—this is a signal the Fed is shifting toward a tightening bias and rates are generally higher as a result.

The US Producer Price Index, which measures inflation at the business and manufacturing levels of the economy, was 1.4% in January and 4.6% year-over-year through January. Excluding volatile oil and food costs from the readings, “Core” PPI for January was 0.3% and 1% YOY through January. These monthly “All” and “Core” numbers were higher than expected, and the Core year-over-year number being up 1% is cause for concern. The news has pushed rates higher this morning (along with $126b in Treasury auctions announced for next week), and tomorrow’s consumer inflation number will give us another key inflation signal to follow today’s.

You can click the Monthly ‘All’ and ‘Core’ PPI reports in our Data section (on the lower right side of the site) or going to our full data page, and it will display a chart where you will see the monthly see-saw as inflation rises and falls monthly, which contributes to rate volatility. A lot of this has to do with oil price volatility, which you can also see by scrolling to the Data section. On surface level, market sentiment seems to be that inflation shouldn’t be an issue for some time because aggregate demand is compromised by weakened consumers and businesses, but higher than expected reports like today’s cause markets to question that, and bonds trade wildly as inflation expectations are reconciled.

Economic Worries
Yesterday’s stock market drop dominated the financial news. And a slowing economy helps rates and mortgage loan agents, right? (It’s a two-edged sword.) So the markets did not pay much attention to Non-Farm Productivity increasing over 6% during the fourth quarter of 2009. Efficiency in the last nine months of 2009 soared at the fastest pace since 1966 as companies cut worker hours even after sales stabilized. Factory Orders for November were up 1%, better than expected. And 4Q09 GDP was 5.7% at the first reading last week. But the focus, and one of the reasons given for stocks taking a beating, was on Jobless Claims which hit a 7-week high.

There is certainly a lot to be nervous about. There is the concern that around-the-world budget deficits will need to be financed by issuing more debt. California, with the 8th largest economy in the world, is continuing to have budget problems. On top of all that, oil prices declined over 5% while gold prices also fell, down over 4%. The dollar was weaker to the yen, but firmer to the euro as the risk aversion trade returned, and this helped Treasuries and mortgage security prices, dropping rates to December levels. more…

Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were 0.1% in December and 2.1% year-over-year through December. Excluding volatile oil and food costs from the readings, “Core” PCE price index for December was 0.1% and 1.5% YOY through December. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these two items, and the Fed’s zone for reasonable inflation is 1-2% per year. At 1.5%, Core inflation is within their comfort zone, as confirmed by the FOMC’s statement last week that inflation is likely to be subdued for some time, and the fact that PCE inflation has been stable since summer 2009.

Personal income increased 0.4% percent in December, and wages were up 0.1% from last month. Households kept hoarding cash with Personal Savings Rate rising to 4.8%, which marks a four-month trend of savings in this range, bringing the 12 month average to 4.6%. In May, personal savings hit an all-time record high of 6.9%. Below are all key details from the Personal Income & Outlays report.

The US Producer Price Index, which measures inflation at the business and manufacturing levels of the economy, was 0.2% in December and 4.4% year-over-year through December. Excluding volatile oil and food costs from the readings, “Core” PPI for December was 0% and 0.9% YOY through December. These monthly “All” and “Core” numbers were lower than last month’s data and at the low end of the Fed’s 1-2% comfort zone for inflation, so bonds are trading more favorably on this news plus stock losses today, which helps drive rates down.

Inflation keeps changing monthly so market trading is volatile as a result. By clicking on the Monthly ‘All’ and ‘Core’ PPI reports in our Data section (on the lower right side of the site) or going to our full data page, it will display a chart where you will see this see-saw very evident. A lot of this has to do with oil price volatility, which you can also see by scrolling to the Data section. On surface level, market sentiment seems to be that inflation shouldn’t be an issue for some time because aggregate demand is compromised by weakened consumers and businesses, but some reports (like November’s PPI) cause markets to question that, and bonds trade wildly as inflation expectations are reconciled.

The US Consumer Price Index, which measures inflation at the consumer level of the economy, was little changed at 0.1% in December and 2.7% year-over-year through December. Excluding volatile oil and food costs from the readings, “Core” CPI for December was 0.1% and 1.8% YOY through December. You can automatically create charts and download historical CPI data by clicking here or scrolling down to our Data section on the right side of the site.

Consumer inflation is within the Fed’s comfort zone of 1-2% and was in line with expectations and this will be confirmed at the business level with next Wednesdays Producer Price Index report for December. If you click on the ‘All CPI, Month’ link in our Data section, it will display a chart at the top of the section where you can see how the volatility of food and especially energy prices causes inflation swings month to month. When this happens traders react accordingly. Rates are tied to bond trading and bonds rally on low inflation news, so today mortgage bonds are higher on the CPI news, which is helping rates drop. more…

Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were 0.2% in November and 1.5% year-over-year through November. Excluding volatile oil and food costs from the readings, “Core” PCE price index for November was 0% and 1.4% YOY through November. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these two items, and the Fed’s zone for reasonable inflation is 1-2% per year. At 1.4%, Core inflation is within their comfort zone, especially since the FOMC confirmed subdued inflation for “some time” last week, and PCE inflation has been either down or even since summer.

Personal income increased 0.4% percent in November, and wages were up 0.3% from last month. Households kept hoarding cash with Personal Savings Rate rising to 4.7%, which marks a three-month trend of savings in this range, bringing the 12 month average to 4.5%. In May, personal savings hit an all-time record high of 6.9%. Below are all key details from the Personal Income & Outlays report.

The US Consumer Price Index, which measures inflation at the consumer level of the economy, was little changed at 0.4% in November and 1.8% year-over-year through November. Excluding volatile oil and food costs from the readings, “Core” CPI for November was o.4% and 1.7% YOY through November. You can view and download historical CPI data by scrolling down to our Data section on the right side of the site.

Inflation is within the Fed’s comfort zone of 1-2% and was in line with expectations following yesterday’s higher than expected business inflation number. If you click on the ‘All CPI, Month’ link in our Data section, it will display a chart at the top of the section where you can see how the volatility of food and especially energy prices causes inflation swings month to month. When this happens traders react accordingly. Rates are tied to bond trading and bonds don’t like inflation so they sell off on inflation fears, pushing price down and yield (or rate) up. Mortgage bonds are flat so far today following a big selloff yesterday after the business inflation was higher. more…

The US Producer Price Index, which measures inflation at the business and manufacturing levels of the economy, was 1.8% in November and 2.4% year-over-year through November. Excluding volatile oil and food costs from the readings, “Core” PPI for November was 0.5% and 1.2% YOY through November. You can view and download historical PPI data by scrolling down to our Data section on the right side of the site.

These numbers were higher than expected. By clicking on the Monthly ‘All’ and ‘Core’ PPI reports in our Data section, it will display a chart atop that section where you will see this see-saw very evident. On surface level, market sentiment seems to be that inflation shouldn’t be an issue for some time because aggregate demand is compromised by weakened consumers and businesses, but today’s report causes markets to question that, and bonds trade wildly as inflation expectations are reconciled. All this month’s measures of PPI close to the Fed’s 1-2% comfort zone for inflation, but since they exceeded expectations, bonds are worst and rates are higher.