New York Fed’s Measure of “Inflation Persistence” Nixes Friday’s Idea that YoY PCE Inflation Cooled, Using Same Data

Yves here. One thing Federal officials (or Friends of the Administration who give hot takes on business TV) have taken far too often to doing is refraining from “Just the facts, ma’am” updates to trying to spin the latest set of releases so as to sound better than they are. Often you see Mr. Market make a fast move that takes up the positioning, only to pretty quickly retreat and recalibrate. Other times, the prettying-up sticks for longer than it ought to. Inflation is a particularly charged issue, since consumers correctly perceive it is still very much with them.

Wolf Richter explains below that that latest hope-fanning, that PCE inflation might be relenting, is contradicted by other readings of the same data. Ooopsie!

And that’s before the fact that Trump tariffs will increase prices, by design, so as to try to shift purchases away from the tariffed foreign wares. But that of course assumes that first, reasonably close US substitutes exist and are or can soon be produced in sufficient quantity so that their prices don’t rise a lot. Otherwise, higher prices and/or shortages are baked in.

To put it another way, this outcome is so obvious that my US-educated Southeast Asian dentist asked me during a recent checkup: “I’m not an economist, but I don’t see how these tariffs make any sense” and rattled off how they’d be sure to increase prices and generate supply chain problems…so what was the point, exactly? In other words, when parties who have no reason to be interested in this topic can still see on a very quick assessment that it looks like bad policy, you have to wonder if the Trumpies are blinded by ideology or have a cunning plan to benefit from the resulting dislocation.

Some other observations on the inflation beat before we turn to the main event.

When you’ve lost the Peterson Institute…

25% tariffs on Canada & Mexico would cause lower GDP & higher inflation than otherwise in all three countries, including the US—& the damage would be even worse if Canada & Mexico retaliate.
Learn more: https://t.co/XuSWijqlfX pic.twitter.com/HdCURdv3Lj

— Peterson Institute (@PIIE) March 3, 2025

Lutnick just said, “You can’t have inflation with a balanced budget.” Government budget was in surplus from 1998-2001. Inflation accelerated. pic.twitter.com/U9dAWrcVAF

— Stephanie Kelton (@StephanieKelton) March 4, 2025

Supply chain bottlenecks are about to be reinvigorated, due to the gross fatuity of Dump’s tariffs. As a consequence, cost-push-markup inflation will be revived, and because of the hegemony of neoliberal central banking, monetary austerity will not wane.

— David Fields (@ProfDavidFields) March 4, 2025

By Wolf Richter, editor at Wolf Street. Originally published at Wolf Street

Just briefly here because it’s an interesting twist by the New York Fed on Friday’s PCE inflation reading: it nixes the idea that year-over-year PCE inflation is cooling.

Back in April 2022, when the Fed’s favored inflation measure, the PCE price index, was surging towards its June 2022 high of 7.2% year-over-year, researchers at the New York Fed came out with a new inflation measure that’s based on the data in the PCE price index, but tries to show inflation’s “persistence.” They did this by aggregating the PCE components differently. And they called it Multivariate Core Trend inflation (MCT inflation).

The idea was perhaps to show that inflation wasn’t quite as bad beneath the surface, and that it was less persistent and on its way out, as for most of the time since its invention, MCT inflation has run well below the core and headline PCE price indices.

Today, they released the MCT for January. Oh boy! The PCE price index for January was released on Friday. What the media jumped on was that year-over-year inflation readings cooled a little. What I pointed out was that the month-to-month increase, the three-month increase, and the six-month increase all showed the worst inflation since the spring of 2024, after accelerating relentlessly for months, but that the massive base-effect in services cooled the year-over-year increases in services, and thereby in the core PCE price index and the headline PCE price index (my discussion of PCE inflation for January).

So now here is the MCT for January, which attempts to show “persistence” of inflation, using the same underlying data but dividing it up differently. “Persistence” has become a huge concept after “transitory” was retired by Powell himself.

The year-over-year MCT accelerated to 2.86% in January, from 2.63% in December, the worst increase since March 2024 (red), driven largely by “services ex-housing” and to a lesser extent by “core goods” (excluding food and energy goods).

In other words, housing is no longer the driver of this inflation at the moment. In this game of inflation Whack-A-Mole, price pressures have shifted to non-housing services, and to core goods.

Also shown in the chart are Friday’s figures: The headline PCE price index decelerated to +2.51% (purple) and core PCE price index decelerated to 2.65% (light blue).