U.S. Prices Hit 30-year High as Personal Income Declines

Snapshot

The U.S. Bureau of Economic Analysis (BEA) of the Department of Commerce released its personal consumption expenditures (PCE) price index for September today showing the biggest increase in prices seen since 1991. 

The Bureau reported that prices, including food and energy goods, increased by 0.3% for the month or 4.4% year on year, while prices excluding food and energy rose by 0.2% and 3.6% in line with analysts’ expectations. Furthermore, core inflation increased by +3.6% on an annualized basis, which matched August’s result. 

In addition, the BEA reported that Personal Income declined by -1.0% in September, which was significantly larger than the market analysts’ consensus of a -0.2% drop. The Bureau also announced that Personal Spending dropped to 0.6% in September from 1.0% in August, which was consistent with market expectations. In absolute numbers, Personal Income decreased by $216.2 billion, while personal spending rose by $93.4 billion in September.

A column chart of Personal Income showing September’s large drop. Source: BEA.

Detail

The BEA observed that the fall in U.S. personal income largely arose from the conclusion of pandemic-related assistance programs, including expanded employment benefits. Since personal income is generally positively correlated with spending, if consumers have more disposable income, they are more likely to stimulate the economy by increasing their spending. 

In particular, pandemic programs that ended included the Pandemic Unemployment Compensation, Pandemic Emergency Unemployment Compensation and the Pandemic Unemployment Assistance programs. Social benefits also fell in September due to decreases in the Provider Relief Fund, the Paycheck Protection Programs and other economic impact payments.

The Core PCE Price Index differs from Core CPI in that it just measures goods and services aimed at and purchased by consumers. The index weights prices according to the total amount expended per item and provides key insights into the spending behavior of consumers. Many believe this important forex news is the Federal Reserve's preferred measure of inflation, although the CPI number’s earlier release tends to get more attention. 

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