USA: Another inflation indicator flashing red

Data released on Friday showed an impressive drop in personal income in April (expected) and the underlying PCE rose to the highest level since 1994. Wells Fargo analysts point out that the 13.1% drop in personal income in April masks widespread growth in a variety of personal income sources that were wiped out by the absence of stimulus controls. Regarding the PCE deflator that rises to 3.6%, they pointed out that it is another inflation indicator flashing red.

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“The fact that personal income plummeted 13.1% was entirely due to the recovery in March’s stimulus-laden earnings. Excluding transfer payments, personal income increased 1.1% during the month, and wages and salaries posted a sharp increase of 1.0%. “

“After a year of remarkably strong growth, we expect some soft patches in goods spending and that was evident in today’s report.”

“The gain in spending reflects in part higher inflation. The PCE deflator, which is the Fed’s preferred inflation measure, rose 0.6 compared to March. The annual rate jumped to 3.6%. Excluding food and energy, core prices rose 0.7%, bringing the annual rate to 3.1%, the highest since the early 1990s. “

“While the steep comparisons from a year ago can be attributed in large part to low base effects after last April’s closings weighed on activity and prices, inflation is on the rise.”

“Although these recent price increases are undoubtedly associated with the reopening of the economy, they could be long-lasting and have the potential to affect the purchasing power of consumers.”

“Our best reading is that inflation concerns could shake sentiment for a while, but household relatively healthy balance sheets and their desire to exit will offset higher prices for spending, at least for now.”