Market Commentary

PCE Index

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It seems we are not far away from increasing inflation numbers. This time it is in the PCE index which is the FED’s favorite inflation gauge. It increased .5% last month even with consumer spending being flat for the month. That spending number was skewed as last month’s spending report was revised up to .9% from .5%, so this month’s flat number does not appear to be as bad as it looks at first blush. Income fell .2% so when you combine spending being flat and income down with inflation being up .5% you can conclude that inflation is very persistent.

It will stay that way, and now, this week, the FED is starting to admit that they were wrong. Though they will never say it that way, changing their stance ever so slightly from a short-term spike in inflation to possibly maintaining a higher persistent level. As we have consistently pointed out, we believe inflation is here to stay for a long time and that means we count it as years not months.