Macro4Micro: Fed Funds & Inflation

The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26

CPI March 2026: The CPI Cycle Could Prove Maddening

Glenn Reynolds, CFA — Sat, 11 Apr 2026 14:06:27 GMT

The fate of the energy sector and flow-through impacts across a wide range of markets are still a moving target. Meanwhile, uncertain goods pricing strategies in 2026 to deal with tariffs also keep the range of CPI scenarios a major challenge for budgeting decisions and economists finding confidence in the underlying variables. The CPI whipsaw in energy and the clear threat to food inflation from rising costs of fertilizer, oil, labor shortages and freight and logistics does not leave room for complacency even if the market yawned at the March 2026 CPI release.
Our favorite special aggregate CPI index is “All items less shelter” (Table 3 of the release) and it has now moved from reassuring to uncomfortably high at +3.4% YoY in March 2026. As we detail below, that 3.4% for CPI ex-Shelter is up by over a point this month from 2.1% in Feb. Within that special CPI aggregate index bucket, we see “All items less food and shelter” at 3.6% and “All items less medical care” at 3.3%. That is not a pretty picture even if subject to where the Iran war crisis evolves.
Our favorite example of a useless BLS CPI metric is now “health insurance” (0.9% weighting in CPI index). Headlines and the “real world” household experience of insurance premium spikes and a sharp erosion of coverage economics has somehow translated into YoY health insurance deflation of -5.3%. Meanwhile, the MoM CPI metric posted health care MoM deflation in Jan, Feb, and March 2026. That is a neat trick and might come as a surprise to those paying health insurance premiums. The 6.4% CPI YoY for “Hospital and related services” is not helping the medical services story line with “Home health care” at +7.6% and with “Nursing homes and adult day services” at 5.2%. That is tough CPI given current demographics.
Energy (6.4% weighting in the CPI index) spiked to +12.5% and naturally captured the headlines in March CPI with Energy Commodities at +19.4% (including Gasoline at 18.9% and 2.9% of the CPI index). Electricity inflation remains a problem separate from the latest Iran issues at 4.6%YoY CPI (2.5% of CPI index) and Utility Piped Gas at +6.4% (0.8% of CPI index). The commodities piece of CPI is tied into global trends from upstream oil and gas to refined products (including diesel, jet fuel, and marine fuel). The market is one sudden escalation away from supply and cost issues worsening (e.g., Houthis and the Red Sea).

The above chart plots the time series for headline and core CPI since Jan 2020 just ahead of COVID. We also detail the long-term medians for each from Jan 1973 with a 3.0% median for headline CPI and 2.9% for core.

Headline CPI of 3.3% is where the market was hovering back in Jan 2025, so we should not be seeing victory laps from the White House on CPI metrics. The Core CPI of 2.6% is above the Sept 2024 lows of +2.4% and also is not “end zone dance” material for Team Trump.

The 2.6% core number is clearly a respectable number in historical context and below the long- term median. That said, it is not a reassuring backdrop with Iran and tariffs still a major risk factor in how goods and services could get priced in 2026. The market also still faces uncertainty around the USMCA review, NATO withdrawal threats, and how that all plays into trade responses.

While economists typically prefer the “core CPI” metric, I remember putting gas in the car next to the supermarket after the Arab Oil Embargo (started Oct 1973 as part of an Israeli war response) was showing its stagflation effects. Headline CPI seemed more important to household purchasing power and household discretionary cash flow. Monetary theories were not the topic du jour in Brockton MA that year (notably in a town dominated by home heating oil at the time).

As we look back at the adventure across the inflation spike of 2022, the damage was mitigated by a well-managed set of Fed actions across 2022 and 2023 that took headline CPI down from 9.1% in June 2022 to 2.9% in Dec 2024. Trump speaks of his 2025-2026 performance as if he started in June 2022 when CPI was 9.1%. Headline CPI is 0.4 points higher now at 3.3%.

Our oft-stated objection to the cause-and-effect rhetoric is that Trump never mentions the role of Russia invading Ukraine in Feb 2022 or how that slammed global oil and LNG and fueled inflation in the US. In fact, Putin gets a red carpet and even gets to cash in on the current crisis in Iran. No blame there from Trump for any US inflation.

The above time series offers a reminder of the multiple inflationary market imbalances across the decades. We plot CPI vs. fed funds to give a sense of Fed policy and real fed funds rate. The combination of inflationary pressures and FOMC question marks could leave the market with negative real fed funds in 2026. If Trump gets his way on lower fed funds, that potential only rises.

As we go to print, the FedWatch “Vegas line” showed a 83.4% chance of no change by the Oct FOMC meeting. The chance of 1 hike by then is just below 2% with the odds of 1 cut by then at 13.9%. As we covered in earlier commentaries, those odds have been whipping around since the start of the Iran War (see Market Commentary: Asset Returns 3-30-26).

The CPI spike in the aftermath of the COVID supply crisis came on the other side of excessive stimulus action that turbocharged demand, in turn bringing major supply-demand imbalances in the goods markets. That inflation effect had ZIRP tailwinds with the invasion of Ukraine by Russia in late Feb 2022 serving as a critical inflationary factor that seldom gets mentioned in the partisan attacks.

The chart offers a look at the first major inflation spike since 1979, which brought Volcker into the job by August that year. The 1979 energy volatility is often framed as the “Iranian oil crisis” (sound familiar?). That earlier 1979 inflation spike rolled into the mother of all tightening cycles from Volcker (including some 20% fed funds days not evident in the weekly average data of that period). That chaos brought a double dip stagflation cycle across 1980-1982 that crushed many bellwether companies.

This current Iranian crisis is much more serious and damaging than the 1979 experience since the US is the #1 oil and gas producer in the world and a major exporter of oil and gas liquids and also includes downstream refined products. The unfolding downstream product supply crisis is doing serious damage from Europe to Asia with jet fuel supply leading the headlines this past week.

The US also neighbors to one of the largest bases of reserves with Canada, who is a major supplier with room for impressive growth if the Canadian policy makers can get out of their own way. Trump has given them plenty of reasons to build their global export capacity and be less dependent on US end markets. Canada is by far the largest oil importer into the US, which in turn frees up more US supply of oil, refined products, and LNG to export.

The above table details a subset of the special aggregate CPI indexes we watch. “All items less shelter” is flashing some warning signs with a significant move higher for YoY metrics during March 2026. Services CPI remains above the 3.0% line as does “Services less energy services” at 3.0%.

We see Durables MoM CPI remaining in check over the past two months as the market tries to handicap where the tariff actions will start to play a role. Nondurables CPI rose to almost 5% in March at 4.9%. “Nondurables less Food” (not shown) hit 7.4% YoY in March.

The above table details our Big 5 subsectors for CPI. These roll up to around 75% of the CPI index, so overall this mix is the main event. We already addressed energy and health insurance above. Energy has a very wide range of potential outcomes subject to the rather bizarre twists and turns of a “game theory” with no rules and too much “humanity” in the picture. The toxic mix includes high geopolitical economic stakes, massive egos, religious zeal, and an uncomfortably high mix of cultural ignorance, incompetence and rampant dishonesty.

Medical care services at 3.7% YoY includes “hospital and related services” and moved lower from 4.1% in Feb 2026. With health insurance premiums soaring (despite the BLS measurement), the -5.3% health insurance CPI number seems less than credible. The BLS needs to rework its methodology to better reflect reality. To the extent households drop off health insurance on affordability (notably in the ACA), they then must face that 6.4% CPI threat from “Hospital and related services.” That is down from 7.6% in Feb 2026.

We put together a version of Automotive that is around 11% of the CPI index if we exclude gasoline, which we include in energy (see Automotive Inflation: More than Meets the Eye10-17-22). The discipline shown by OEMs in new vehicle pricing could be coming to an end in 2026 with small increases going a long way on big ticket items and funding costs seeing little relief so far. The CPI cost of a vehicle does not include financing costs, so it comes with an “asterisk” on affordability.

The table above tells the story with “Food-all” at 2.7% (down from 3.1% in Feb 2026). If we use “Food at home,” the 1.9% in March is better than the 2.4% in Feb 2026. In other words, food inflation in general has improved sequentially but there is a lot of noise ahead with labor costs, fertilizer pressures, the cost of simply operating equipment before considering freight and logistics add-ons that flow into the consumer cost.

Both “Food at Home” and “Food Away from Home” are higher in March 2026 than in Dec 2024 (Biden’s last full month). The CPI levels by product line vary widely. Meat CPI at 6.8% YoY was down sequentially from Feb 2026 (Beef and Veal at 12.1%) with Lettuce at 13.8%, Tomatoes at 22.6%, Coffee at 18.7%, and Sweets at 8.1% on the list of gripes for many, including me (I cannot live without lettuce. Sarcasm alert).

The above table highlights a few categories near and dear to many households. Recreation services declined and are well below the 2022 to 2025 levels seen with the post-COVID boom in consumer spending.

We see the lofty tariffs on the “labor arb” countries (notably in Asia) starting to show up in the Apparel line. While 3.4% CPI on Apparel is not back at 2022 levels, there is room for trouble there. February and March were going the wrong way quickly in MoM metrics.

Next comes the simple cost of freight and logistics that will add to the cost recovery challenge. Diesel is up sharply, and that will weigh heavily on delivery costs and related surcharges for all goods and that includes apparel. That will show up in new inventory and cost of sales even as pricing decisions to mitigate tariffs see more visibility (note: buyer writes the check for tariffs, no matter what Trump says). The tariff and freight knock-on unit cost effects will lead to pass-through pricing decisions or worse margins. Choices need to be made.

Material costs in clothing also include a heavy mix of downstream hydrocarbon derivatives that feed clothing prices. While it may not match the market share of the polyester disco shirts (1970s), synthetic clothing costs can impact profit margins and pricing strategies in manufacturing.

Airline fares are tied to jet fuel prices, so that air fare CPI of 14.9% is up from 7.1% in Feb 2026 and 2.2% in January. Jet fuel as a refined product is high on price and short on supply globally. How that flows into vacation plans and business travel is a factor to watch. Summer is the peak travel season.

Employment Situation March 2026 4-4-26

Payroll Focus: ADP Highlights March 2026 4-1-26

JOLTS Feb 2026: Openings Down, Hires Down, Layoffs Up 3-31-26

Market Commentary: Asset Returns 3-30-26

UST Deltas: Elevation Realities 3-29-26

Market Commentary: Asset Returns 3-23-26

Market Lookback: Confusion Reigns, Dislocation Pours 3-22-26

New Homes Sales Jan 2026: The Nays Carry 3-19-26

Producer Price Index Feb 2026: Getting Warmer 3-18-26

Industrial Production Feb 2026: Capacity Utilization 3-16-26

Market Lookback: The Gulf of Cause and Effect 3-15-26

PCE Inflation Jan 2026: Personal Income & Outlays 3-13-26

Housing Starts Jan 2026: Total Starts Up, Completions Up, Permits Down 3-12-26

PCE Inflation Jan 2026: Personal Income & Outlays

Glenn Reynolds, CFA — Fri, 13 Mar 2026 20:13:03 GMT

Paying more is patriotic!

The review of January data loses some of its value given what is unfolding in March in the Iran War, but PCE inflation was “going nowhere fast” in January with headline PCE ticking slightly lower to 2.8% and Core PCE inflation higher to 3.1% and both still well above target.
PCE was supported by -0.8% in Energy Goods and Services with Food steady at +2.0%. Energy will certainly be moving higher while spiraling costs along the food supplier chain to the kitchen table will also push Food prices higher on a combined range of factors. Freight and logistics costs will be a critical driver even before all the moving parts of fertilizer costs and related supply-demand imbalances.
During 2025, constructive notes in the data mix had been that consumers were generally spending faster than their income was growing (PCE growth > DPI growth). PCE growth is the main supporter of economic expansion, so that helped the macro story. That relationship just shifted to DPI being ahead of PCE this month for the monthly growth trends. We have a chart near the end of this comment on that history. Jan 2026 saw saving rates rise. The challenge to the consumer from here includes the zero-sum impacts from the Iran War even as health care budgets also trend higher on health insurance premiums.
The FedWatch odds of no FOMC action have been rising with June odds at 75% for “no action” and even September sees odds at 54% for no easing. Late October is on the cusp of a move at 49.4%. That was not the Trump playbook to start the year.

The above chart updates the time series for “fed funds minus core PCE.” The PCE inflation metric tends to be a focal point for the FOMC and economists, but the pressure on energy costs (notably electricity and utility piped gas) and food inflation had already been attracting household budget focus and influencing consumer moods in a midterm election year.

At last look, the national retail regular gasoline cost today from AAA was $3.63, or up by over 23% over 1 month. Diesel was $4.89 or up by 34%, and that translates into higher delivery costs, surcharges and inflation – or lower profits for those goods and services providers paying those delivery costs.

The long-term median on the FFER vs. PCE differential is 1.4%, but that has been cut almost in half. In a range of comments, Trump had been demanding an immediate move to negative real fed funds rates by the Fed. He might go radio silent on that topic for a while (is that even possible?) until Warsh is in the seat and the Iran effects sorted out.

Today’s PCE release would not have helped with headline PCE price inflation at 2.8% and Core PCE at 3.1% YoY. The UST curve is not showing confidence right now with the 10Y UST at 4.28% and 2Y UST at 3.73%.

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (below the current 2.8%) and the 2.5% core PCE median (vs. current 3.1%). That 2.8% headline PCE is dramatically better than where we came from in July 2022 at 7.1% PCE, but it is still well above the 2.0% target.

The Jan 2026 PCE numbers are at reasonable levels in long-term context, but they are in somewhat of a stall with numerous key lines going in the wrong direction. Even if one seeks to embrace the “one-time event” theme for tariffs, that still means higher price levels that can bring reduced purchasing power for select line items – subject to a household’s typical “basket” (coffee drinkers, beef eaters and “sweets” fans take note). The Iran effects now open up even more stagflation scenarios.

We include the 1997-2026 timeline above for a useful frame of reference on the PCE target of 2.0% that is routinely discussed by the Fed and in the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s.

Debate in financial and economic circles rage on around whether the Fed inflation target should be 2.5% or 3.0% or some other number. The above chart offers a reminder of how hard it is to get to 2.0% or below for headline PCE or core PCE. The earlier chart from 1972 covers the timeline from the inflationary/stagflationary periods of 1973 to 1982 to hammer that home.

The “1997 to 2026” period presents a rare stretch at or below the 2.0% PCE line and core PCE median as noted in the chart. It took a lot to go wrong in that time horizon to cross that 2.0% threshold. The events along the way included tech bubbles bursting in 2000-2001, oil crashes in the late 1990s and in the late 2014 to early 2016 period, and a bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

In the above timeline, we even see deflation in the post-crisis recession trough in mid-2009. The collapse in oil prices in late 2015 and then the COVID impact in 2020 gave an assist to low PCE before the supply-demand boomerang hit in 2021. Oil is a big headline mover whenever there is a sharp decline or spike, and we have had plenty of both.

This current situation rivals the geopolitical risk of late 1973 into early 1975. The biggest difference of course is that the US is now the largest oil and gas and liquids producer in the world. On the other hand, those US and Canadian producers will be raising prices along with the rest of the world.

It is interesting that the topic of the Feb 2022 invasion of Ukraine and ensuing oil and gas spike never seems to find a way into the Trump and MAGA rhetoric on inflation in 2022. That was a major factor in inflation, but the economic reality of the Russia relationship did not serve the domestic political priorities of Team Trump in assigning any blame there for inflation.

The lack of justice in this Middle East crisis is that the US is unleashing Russia to produce and profit by waiving sanction limits. They say “temporary” but that faces some skepticism with pro-Russia Witkoff and Jared on the job as NY real estate guys (not geopolitical experts with a pro-Democracy set of guidelines). The fact that Putin was a major factor in the 2022 inflation and now gets to profit from this round of oil inflation goes into the “life is not fair” category.

Gasoline has been in deflation mode for most of 2025, and that helped dampen the inflation headline numbers. As 2025 wore on, energy inflation has gone the other way and notably in areas such as electricity and piped utility gas (see CPI Jan 2026: Reassuring Numbers, Missing Pieces 2-13-26, Simplifying the Affordability Question 11-11-25, Retail Gasoline Prices: Biblical Power to Control Global Commodities 11-13-25). Now oil and LNG will pile on globally.

The above chart frames the long-term differential history between PCE and core PCE since 1972. The long-term median differential is zero and we are currently at -0.3%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s. We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and electricity inflation have been near the top of the affordability political rage-fest. Now oil will join in.

The above chart updates the trend line in disposable personal income (DPI) vs. personal consumption expenditures (PCE) that we get with each monthly PCE release. We like updating this chart each month for a reminder of what really happened given the waves of disinformation from the current administration. Revisionist history is one thing, but it is good to challenge gross falsehoods and misstatements with facts and history.

When PCE growth exceeds DPI growth, the conclusion is that the consumer is feeling good or perhaps tapping credit cards by necessity (e.g. the PCE could include outsized health care premiums).

The stimulus overload of 2021…

The 2021 period was a big macro rebound in GDP off the COVID peak period. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike ensued.

The above chart plots MoM Disposable Personal Income vs. PCE and offers a read on how wild things got during and right after the pandemic peak. This is a chart we use each month to revisit the DPI swings that came with the three COVID relief/stimulus packages. That included two COVID relief bills under Trump and one under Biden.

The COVID relief binge…

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentions that Dec 2020 one since it is easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue it was over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

As a reminder, the vaccine was announced in early Nov 2020 just ahead of two stimulus actions. That was soon to be a factor in PCE patterns and lag effects. The quarterly GDP numbers in 2021 on the post-COVID bounce were numbers generally not seen since the Reagan and Clinton years (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. So far, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. That has mitigated the damage, but that de facto submission could come back to haunt some major trade partners if others run for office with a “get tough” election pitch. Caving in to Trump on tariffs is getting less popular in the EU and Canada.

Jacking up aluminum, steel, and copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs under Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. Other actions brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture.

The most important development in the tariff area was the SCOTUS decision on IEEPA. Trump is launching tariffs under Section 122 laws and initiating more Section 301 actions (unfair trade) to maximize his flexibility with Section 232 (national security) also in the playbook.

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income. We like to include this and the prior chart just given the heavy mix of disinformation and politically axed story lines we constantly hear from Trump on Biden being the cause of all the macro problems at the end of 2025.

Accurate factual and conceptual frameworks of “the now” matter more than qualitative political spin looking backwards. That said, having a sense of what the numbers were then helps clear up the misinformation nonsense. After all, this is a very different world of tariffs and top-down government policy with very different tax structures and priorities.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2020 through Jan 2026 (we dropped 2019 from the chart this month given chart crowding). It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE.

One exercise to do from time to time is to look at Table 1 in the monthly PCE release for the granular dollar amount on each DPI reconciliation line. The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings.

Any reader of Table 1 can simply tick off which lines might come under pressure in coming months. Examples include expense lines such as Medicaid (post tax bill) or other health care premiums under ACA. There is also the recurring pressure on select durable goods that face tariffs.

It is always worth remembering that a tariff is a regressive tax that hits lower income consumers harder and the same for small businesses. The same is true in Medicaid costs based on the income brackets of Medicaid users. A loss of health care benefits and higher pharma costs is a zero-sum game with other consumption lines. The current ACA premium spikes will also be a zero sum “game” for many budgets.

The above chart updates the savings rate history with the latest numbers rising to 4.5% from 4.0%. That is a tick below the June highs of 4.6%. The BEA savings rate data comes with the warning label that it has been a case study in revisions, but it does make intuitive sense as a reflection of how confident households are in their spending vs. savings.

We have looked at the savings rate dynamics in earlier commentaries (see Savings Rates: Context Across the Cycles 10-27-23). Savings rates peak in times of worry (occasionally panic) as evident in the chart above. As of 2025, households had clearly been spending even if some might come to regret it when credit card bills come due. As we roll into 2026, we could start to see pressure on the PCE lines.

Looking back across time, we see some examples. The period leading into May 1975 was no picnic after the massive stagflation bout and the same was true in Nov 1981. Dec 1992 had a raft of issues as the commercial real estate bubble was bursting (and hammering some banks), the leveraged finance boom was on the back end of the default cycle, the thrift crisis effects were still playing out across some major regional economies (notably TX and CA), and the regional oil patch pain that had come home to roost in 1987-1990 was lingering.

Housing Starts Jan 2026: Total Starts Up, Completions Up, Permits Down 3-12-26

CPI Feb 2026: It’s Making You Wait… 3-12-26

Market Commentary: Asset Returns 3-8-26

Payrolls Feb 2026: Into the Weeds 3-8-26

Employment Situation Feb 2026: Payrolls Get Ugly 3-8-26

PCE Income & Outlays Dec 2025: Inflation Reversal? 2-20-26

4Q25 GDP (Advance Est.): Less Distortion This Time 2-20-26

Industrial Production Jan 2026: Capacity Utilization Trends 2-19-26

Home Starts Dec 2025: Wrapping a Weak 2025 2-18-26

Market Lookback 2-17-26

2025 Spread Walks and Multicycle Return Histories 1-5-26

Annual Return Differentials: HY vs. IG Across the Cycles 1-3-26

Total Return Quilt Across Asset Classes 2008-2025 1-2-26

Cyclical Histories: Will Facts Be in Vogue in 2026? 1-2-26

CPI Feb 2026: It’s Making You Wait…

Glenn Reynolds, CFA — Wed, 11 Mar 2026 16:44:42 GMT

“But the CPI release said health care insurance was deflating?!”

Headline and Core CPI remain in check for Feb 2026 even if all eyes during the spring will be locked in on how the energy line and the scary impacts of higher freight and materials costs flow into other CPI lines. That includes food costs. Overall, the CPI mix looked a lot like Jan but is heading for a lot more change (see CPI Jan 2026: Reassuring Numbers, Missing Pieces 2-13-26). We get a PCE inflation update this week with PCE running ahead of CPI at this point (see PCE Income & Outlays Dec 2025: Inflation Reversal? 2-20-26).
Energy will remain the hot topic ahead as the Energy CPI of 0.5% (6.3% of CPI index) includes -5.2% for Energy Commodities (3.0% of CPI) along with Electricity (2.5% of CPI index) at +4.8% CPI and Utility Piped Gas (0.8% of CPI index) at +10.9% CPI. That Energy CPI includes a -5.6% CPI for Gasoline in the commodities bucket. The recent spike in gasoline will drive surcharges and delivery cost inflation in coming weeks and months that will necessarily flow into food, goods, and services as freight and logistics bills rise.
Health insurance inflation is one of those areas that the White House is unlikely to bring up given the trend in premiums experienced by the consumer. That said, right now the CPI line for health insurance shows deflation given the methods used by the BLS for health insurance. It is one of those issues (like Shelter and Owners Equivalent Rent) where the day-to-day realities of “cash-in, cash-out” at the household level don’t align with CPI. The reported Health insurance CPI is most definitely diverging from the household checkbook experience. We see a -3.6% YoY CPI for health insurance as of Feb 2026. Health care insurance has a CPI index weighting of 0.88% but punches above its weight class in importance for many consumers.

The above chart tracks the post-COVID journey of headline CPI and Core CPI since just before COVID and then across the inflationary spike into 2022. We saw the end of ZIRP in March 2022 and then the tightening cycle that saw sharply lower inflation across 2023 and into 2024. We see the 2.4% lows in late 2024 for headline CPI with the end of December 2024 at 2.9% for headline.

Trump always starts his bragging rights by comparing his CPI to June 2022, which is not how reality works. The FOMC did their job quite successfully across 2023 after they whiffed in 2021 by waiting too long. Trump doesn’t get to start his game clock at 9.1% in June 2022, and Trump should probably thank Powell and the FOMC for dealing him good cards.

By the numbers, the current +2.4% headline CPI is back around a recent Sept 2024 low point noted in the chart. The Feb 2026 2.4% headline and 2.5% core remain above target but are in a very good zone based on history. The Iran War and energy fallout is about to upset the applecart in coming weeks. For example, national retail regular gasoline is at $3.58 as we go to print, which is up by +22% over 1 month. Diesel is at $4.83 or up by 32% (Source: AAA). Diesel flows into the transport cost questions.

While Trump has slammed Powell and Biden as the most destructive forces since the Black Plague, the fact is that Biden was only the second President in 50 years to get through his term with no recession months. Clinton was the other recession-free President across two terms but with much better headline and PCE growth years to boast (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24). Avoiding a recession by late 2022 was a function of strong consumer spending and low unemployment that pushed through the CPI pain.

One could say that Powell led a Fed that tightened and beat inflation with no recession. Volcker had a double dip but also faced a much more dangerous inflation threat. We live in a policy world where the lack of blind obedience makes one the enemy subject to blame and the target of generally concept-lite and fact free attacks. Too often the attacks are economically incoherent. That will only muddy the analysis of the Iran war fallout.

The above time series offers a reminder of the multiple market imbalances across the decades. The CPI spike in the aftermath of the COVID supply crisis teamed up with excessive stimulus action and the invasion of Ukraine by Russia in late Feb 2022. It is not a surprise that you never hear Putin’s role in the inflation spike cited by the White House.

The chart also offers a look at the first major inflation spike since 1979 brought Volcker into the job by August that year. The 1979 energy volatility is often framed as the “Iranian oil crisis” (sound familiar?). This current Iranian crisis is much more serious and damaging than the 1979 experience (unless you were a hostage). That period rolled into the mother of all tightening cycles from Volcker (including some 20% fed funds days) and a double dip stagflation cycle across 1980-1982 that crushed many bellwether companies.

The above table updates the Special Aggregate indexes from Table 3 in the CPI release. Our favorite is “All items less shelter” since we consider Owners’ Equivalent Rent as a fairly useless derived metric that bears little resemblance to the household budget and the “cash in, cash out” checkbook experience. All items less shelter is at 2.1% in Feb 2026, which is down from the mid to late 2025 highs but above the 2023-2024 levels.

We see Services at 3.1% as the line remains stubborn in a services economy with a decent trend in consumer spending. We look for consumer spending metrics in GDP reports and the Personal Income and Outlays releases (we get both of those this week) among other releases (Retail Sales, etc.). Durables CPI levels are in check but above the deflation of 2023-2024. Nondurables also remain low in the sub-2% range.

The above table details our Big 5 subsectors for CPI. These roll up to around 75% of the CPI index, so they are the main event. We already addressed energy and health insurance in the bullets above. Energy is already spiraling and swinging wildly the past week.

Medical care services at 4.1% includes “hospital and related services” at 7.6% with health insurance premiums soaring outside the BLS measurement. To the extent households drop off health insurance on affordability (notably ACA), they then must face that 7.6% CPI threat from hospital and related services.

We have put together a version of Automotive that is around 11% of the CPI index if we exclude gasoline, which we include in energy (see Automotive Inflation: More than Meets the Eye10-17-22). The discipline shown by OEMs in new vehicle pricing could be coming to an end in 2026 with small increases going a long way on big ticket items and funding costs seeing little relief so far.

The table above tells the story with “Food-all” at 3.1% or flat to Dec 2025. If we use “Food at home,” the 2.4% is also flat to Dec 2025. In other words, food inflation in general is not lower and not higher in Feb 2026 vs. Dec 2025. Both “Food at Home” and “Food Away from Home” are higher in Feb 2026 than in Dec 2024 (Biden’s last full month).

The story in the line items varies by product line. Meat CPI at 8.6% (Beef and Veal at 14.4%), Lettuce at 15.3%, Coffee at 18.4%, and Sweets at 9.0% are on the list of gripes for many, including me (I can live without the lettuce).

The above table highlights a few categories near and dear to many households. We see the lofty tariffs on the “labor arb” countries (notably in Asia) starting to show up in the Apparel line. Airline fares are tied to jet fuel prices, so that 7.1% line is just getting warmed up. How that will flow into vacation plans and business travel will be one to watch.

Some CPI Histories:

Inflation: The Grocery Price Thing vs. Energy 12-16-24

Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23

Fed Funds – Inflation Differentials: Strange History 7-1-23

Fed Funds, CPI, and the Stairway to Where? 10-20-22

Automotive Inflation: More than Meets the Eye10-17-22

See also:

Market Commentary: Asset Returns 3-8-26

Payrolls Feb 2026: Into the Weeds 3-8-26

Employment Situation Feb 2026: Payrolls Get Ugly 3-8-26

PCE Income & Outlays Dec 2025: Inflation Reversal? 2-20-26

4Q25 GDP (Advance Est.): Less Distortion This Time 2-20-26

Industrial Production Jan 2026: Capacity Utilization Trends 2-19-26

Home Starts Dec 2025: Wrapping a Weak 2025 2-18-26

Market Lookback 2-17-26

CPI Jan 2026: Reassuring Numbers, Missing Pieces 2-13-26

2025 Spread Walks and Multicycle Return Histories 1-5-26

Annual Return Differentials: HY vs. IG Across the Cycles 1-3-26

Total Return Quilt Across Asset Classes 2008-2025 1-2-26

Cyclical Histories: Will Facts Be in Vogue in 2026? 1-2-26

PCE Income & Outlays Dec 2025: Inflation Reversal?

Glenn Reynolds, CFA — Fri, 20 Feb 2026 19:53:38 GMT

FOMC planning session.

The market had a PCE price index setback to end 2025 just as Fed independence had eased out of the headlines. Warsh will get his test soon enough.
With the headline PCE price index rising to 2.9% from 2.8% and Core PCE prices moving to 3.0% from 2.8%, life is going to get tricky at the Fed unless payroll trends offer more excuses.
Food inflation in PCE ticked higher to 2.1% YoY in Dec 2025 from 2.0% in Nov 2025 while Energy Goods and Services ticked lower to 2.2% in Dec from 4.4% in Nov 2025. That energy number is still well above the recent deflation (including -3.8% in May).
Personal Consumption Expenditure growth ran ahead of Disposable Personal Income Growth, so the consumer remains in the game.
The combination of higher PCE inflation on a mediocre 4Q25 GDP reporting day keeps the market tone mixed with the end of IEEPA raising questions on what comes next (see 4Q25 GDP (Advance Est.): Less Distortion This Time 2-20-26).

The above chart updates the time series for “fed funds minus core PCE.” The PCE inflation metric tends to be a focal point for the FOMC and economists, but the pressure on energy costs (notably electricity and utility piped gas) and food inflation are attracting household finance focus and influencing consumer moods in a midterm election year.

The long-term median on the FFER vs. PCE differential is 1.4%, but recent easing has cut that almost in half. In a range of comments, Trump has demanded an immediate move to negative real fed funds rates by the Fed. That is easier said than done with inflation well above the Fed target and the economy doing better than earlier in 2025. Today’s PCE release will not help with headline PCE price inflation higher at 2.9% in Dec vs. 2.8% in Nov and 2.5% as recently as May. Core PCE rose to 3.0% YoY in Dec from 2.8% in Nov 2025.

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (below the current 2.9%) and the 2.5% core PCE median (vs. current 3.0%). That 2.9% headline is dramatically better than where we came from in July 2022 at 7.1% PCE, but it is still well above the 2.0% target.

The Dec 2025 PCE numbers are at reasonable levels in long-term context, but they are in somewhat of a stall with numerous key lines going in the wrong direction. Even if one seeks to embrace the “one-time event” theme for tariffs, that still means higher price levels that can bring reduced purchasing power for select line items – subject to a household’s typical “basket” (coffee drinkers, beef eaters and “sweets” fans take note).

In the move from early spring to Dec 2025, Goods moved from deflation to +1.7% inflation. We see Energy Goods and Services move from -3.8% deflation in May to +4.4% inflation in Nov 2025 and now down to +2.2% in Dec 2025. Services remain sticky at +3.4% in Dec 2025 down slightly from +3.6% in Aug 2025. When you hear the refrain of “prices are way down” in the White House rambling routines, it is simply not true.

We include the 1997 to 2025 time horizon above for a good frame of reference on the PCE target of 2.0% that is routinely discussed by the Fed and in the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s.

The “1997 to 2025” period presents a rare stretch at or below the 2.0% PCE line and core PCE median as noted in the chart. It took a lot to go wrong in that time horizon to cross that 2.0% threshold. The events along the way included tech bubbles bursting in 2000-2001, oil crashes in the late 1990s and the late 2014 to early 2016 period, and a systemic bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

The Biden politics and stimulus policies definitely had a major adverse inflationary impact on pricing and supply-demand imbalances after COVID. That is also the case with the Russian invasion of Ukraine.

Gasoline has been in deflation mode for part of 2025, and that helped dampen the inflation headline numbers. As 2025 wore on, energy inflation has gone the other way and notably in areas such as electricity and piped utility gas (see CPI Jan 2026: Reassuring Numbers, Missing Pieces 2-13-26, Simplifying the Affordability Question 11-11-25, Retail Gasoline Prices: Biblical Power to Control Global Commodities 11-13-25).

The above chart frames the long-term differential history between PCE and core PCE since 1972. The long-term median differential is zero and we are currently at -0.1%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s. We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and electricity inflation have been near the top of the affordability political rage-fest.

The above chart updates the trend line in disposable personal income (DPI) vs. personal consumption expenditures (PCE) that we get with each monthly PCE release. When PCE growth exceeds DPI growth, the conclusion is that the consumer is feeling good or tapping credit cards by necessity (e.g. the PCE could be outsized health care premiums).

The stimulus overload of 2021…

The COVID relief binge…

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentioned that Dec 2020 one since it was easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. So far, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. That has mitigated the damage but that de facto submission could come back to haunt some major trade partners if others run for office with a “get tough” election pitch.

Jacking up aluminum, steel, copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs under Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. Recent period brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture.

The IEEPA tariffs were just struck down by the Supreme Court in a 6-3 vote (Thomas, Alito, and Kavanaugh dissent). That will change the dynamics of trade deals from here even if Team Trump has been contingency planning. There are other trade and tariff remedies but we don’t expect those will cover threatening Europe with tariffs if they do not allow annexation of Greenland or hitting Brazil with massive tariffs for jailing Trump’s “coup bro.” Those tactics should be over.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2019 through Dec 2025. It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE.

The above chart updates the savings rate history with the latest number down slightly to 3.6% after 4.9% as recently as May (as revised). We have looked at the savings rate dynamics in earlier commentaries (see Savings Rates: Context Across the Cycles 10-27-23). Savings rates peak in times of worry (occasionally panic) as evident in the chart above. As of now, households are clearly spending even if some more come to regret it when credit card bills come due.

The period leading into May 1975 was no picnic after the massive stagflation bout and the same was true in Nov 1981. Dec 1992 had a raft of issues as the commercial real estate bubble was bursting (and hammering some banks), the leveraged finance boom was on the back end of the default cycle, the thrift crisis effects were still playing out across some major regional economies (notably TX and CA), and the regional oil patch pain that had come home to roost in 1987-1990 was lingering.

CPI Jan 2026: Reassuring Numbers, Missing Pieces

Glenn Reynolds, CFA — Fri, 13 Feb 2026 21:30:00 GMT

Show me the health care insurance inflation.

The overall CPI picture brought good news just by going down to 2.4% in total (vs. 2.7% in Dec 2025) while core CPI weighed in at +2.5% (vs. 2.6% in Dec 2025). As the Washington noisemakers turns up the volume (as usual), the reality is that +2.4% by definition means aggregate prices are rising (that is why they call it inflation – even when it is low). The good news is that inflation is slower than wage growth as covered in the CPI report as well as the 4Q25 Employment Cost Index report this week.
A granular dive into CPI lines still reveals pockets of affordability pain in areas that matter to consumers (and voters). The partisan talking heads on the right will run right past those lines. The partisans on the left will scream affordability problems even with lower CPI. The fact is the Jan 2026 CPI numbers mark an improvement in aggregate for consumers with pockets of bad news as well. What manufacturers and service providers had to “eat” in tariff costs lurks behind the CPI metrics.
Some CPI lines reveal a disconnect between the BLS methodology and household cash flow reality. A notable example is Health Insurance premiums as a headline topic and household crisis for many. Health Insurance weighed in for January at -2.2% YoY and -1.0% MoM from Dec 2025. As in housing and the infamous OER metric, the BLS has its own distinctive approach to measuring health insurance CPI. We have not yet seen much debate around BLS measurement on health care “deflation” of Jan 2026. Households often live in a cash-in, cash-out world and the OER metrics in housing and health insurance CPI levels are in a different world.
As we detail below, the Medical Care Services line is creeping higher with lines such as “hospital and related services” at 6.9% YoY, “inpatient services” at 7.4%, “dental services” at 5.3%, and “home health care” at 12.7%. We also saw some below-the-headline CPI metrics such as “water, sewer, and trash collection” at 4.7%, “motor vehicle maintenance and repair” at 4.9%, and “postage and delivery” at +5.3%.
Scrolling the columns of CPI can be depressing for many consumers and at times surprising since they are not as well-known as the grocery aisle prices (beef and veal at +15.0%, fresh fish and seafood at 5.7%, coffee at 18.3%, sugar and sweets at +5.7% with candy and chewing gum at 7.5%, etc.).

The above chart runs through the time series for Headline CPI and Core CPI since the start of the COVID year of 2020. By the numbers, the current +2.4% headline CPI is back around a recent Sept 2024 low point noted in the chart.

The time series offers a reminder of the multiple market imbalances that drove the CPI spike in the aftermath of COVID supply crises teamed up with excessive stimulus action.

The chart also offers a look at the first major inflation spike since 1979 brought Volcker into the job by August that year. That period rolled into the mother of all tightening and a double dip stagflation cycle that crushed many bellwether companies.

The pace of the decline in CPI across 2023 really stands out in the chart with the economic expansion continuing and regular record stock market highs into 2024. Those topics tend to not get much mention.

While Trump was slamming Powell and Biden as the most destructive creatures since the primordial soup, the fact is that Biden was only the second President in 50 years to get through his term with no recession months. Clinton was the other recession-free President across two terms but with much better headline and PCE growth years to boast (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24).

The above chart gives the longer-term history from the bad old days of oil embargoes (late 1973/early 1974) and the late decade stagflation and Volcker. We detail the fed funds rate and headline CPI. The earlier data of the 1970s and early 1980s uses weekly averages, so you don’t see some of the brief 20% fed funds days of that tightening cycle. We cover those histories in some links at the bottom of this commentary.

I occasionally highlight that I arrived in NYC to start work in the month the Misery Index hit 22%. In that context, 2022 looks mild. The CPI and PCE levels quickly corrected into 2023 and into 2024. Powell and the FOMC should be praised for that even if they justifiably can take heat for waiting too long in 2021.

Those who call 2022 “the worst inflation in history” are simply ignorant and/or dishonest (i.e. partisan idiots). The US did not even have a recession in 2022. PCE (consumption) remained high and unemployment low.

The 1980-1982 double dip was a radically different backdrop than 2022 (see Unemployment, Recessions, and the Potter Stewart Rule 10-7-22). The lack of a recession in 2022-2023 was a testament to the diversity of the US economy and the resilience of the consumer. That appears to be playing out again in 2025-2026 even with some mild signs of weakening payroll indicators and despite damaging tariff distortions.

The economic signals may be mixed, but growth is steady even if the White House does not make reality adjustments for the GDP growth rates it cites (see Cyclical Histories: Will Facts Be in Vogue in 2026? 1-2-26, 3Q25 GDP: Morning After Variables to Ponder 12-27-25).

The above table breaks out some of the special aggregate CPI metrics that slice and dice the high-level index metrics to adjust for some outsized sectors (e.g. ex-shelter). The special index aggregates also narrow in on some key subsector lines (e.g. Services total, Durables, Nondurables). A few more angles on the big picture are always useful. We select some key quarter end dates to fit more data in the table. We had to leave some out.

The takeaway from these Table 3 adjusted CPI metrics bring good news after a stretch in 2025 that saw some unfavorable moves. “All items less shelter” is our favorite, and that CPI measure had trended down nicely into Jan 2026 after moving higher from +1.9% in Dec 2024 to +2.7% in Sept 2025 as shown in the chart. This metric in Jan 2026 at 2.0% is still above 2023-2024 but moving in a better direction.

Services total at +3.2% remains a headache in a services economy such as the US as the “Services” special index comprised 64% of CPI. At +3.2%, the Services CPI is now well below 2023 and 2024. The Services CPI is improving from the higher 3% handle numbers seen in 2025. This category is a win for Trump’s CPI metrics.

We see Durables trending lower, which in turn pushes back on the adverse tariff scenarios. Even in that case of good news for Durables inflation, consideration has to be given to cyclical demand trends or the potential margin erosion of the importer/buyer and the need to “eat the tariff cost” from the supplier chain. That can be a major risk from materials and components in the supplier-to-OEM chain.

If Trump crushes Canada or Mexico in the upcoming USMCA review, the downstream buyers may need to review their pricing strategies in 2026. People who pretend the tariff debate is over are engaged in wishful thinking. There is a lot of trade noise and decisions ahead.

The Big 5 buckets are broken out above. These 5 groupings dominate the CPI weighting with shelter at a disproportionately high 35.6% weighting in the CPI. As noted in the table, food and the total mix of auto lines are a distant second and third.

Shelter CPI stubborn as measured by BLS…

As covered in numerous past commentaries, the Shelter CPI is heavily influenced by a derived metric called “Owners’ Equivalent Rent” that is over 26% of the total CPI. The disconnect from cash reality is that a homeowner with a low 3% mortgage is not seeing his cash flow experience change as his home rises in value and his monthly payment remains unchanged. That homeowner is in fact seeing no change in his core shelter costs. That said, electricity, piped gas, insurance, furnishings, and the goods in the home are seeing price increases. The BLS does not use home prices and related financing costs in CPI since it changed its methodology back in the early 1980s.

Autos protected by OEM pricing and costly defense of retail markets…

We have put together a profile of Automotive sector CPI given its outsized role in household budgets (see Automotive Inflation: More than Meets the Eye10-17-22). We don’t include gasoline in the auto CPI since we have that over in Energy.

The good news for those buying new or used vehicles is that the new vehicle market has seen the OEMs step up to eat much of the tariff costs (for now) in the interest of preserving volumes and supporting dealers. That is likely to change gradually over time. GM especially has been active in planning to relocate production capacity to the US as additional measures to ease tariff margin pressures (see Credit Profile: General Motors and GM Financial 10-9-25).

Medical Care CPI rising while flawed health insurance metric “deflates”…

As noted above, the health care metrics come with some very big asterisks for health insurance inflation. We can’t wait for some White House talking heads to cite the deflation in health insurance as premiums spike. They would not be pressed by CNBC on the topic since CNBC wants to take share away from Fox News and keep the guests coming back.

As noted in the bullets, the Medical Care Services lines are troubling. While the headline “medical care services” line posts 3.9%, that includes -2.2% for “health insurance.” The BLS is not opening the mail for those seeing massive premium increases. We see 6.9% for “hospital and related services” with 7.4% for “inpatient services” within that group and 6.1% for “outpatient.” “Home health care” at 12.7% and 4.8% for “nursing homes and adult day services” also tell a story for the boomers and their families.

Energy always a mixed bag across oil, electricity, and piped gas…

Energy inflation gets simplified in political spin as being all about oil and gasoline, but the real challenge has been electricity and piped utilities gas. Total energy weighed in at -0.1% YoY but “Energy Services” (electricity and piped gas) posted 7.2% CPI with its 3.3% index weighting. The “energy commodities” (primarily gasoline) posted -7.3% CPI with its 3.1% index weighting. Oil and natural gas can swing around, but the power grid issues are not going away.

Food comes down to your menu choice…

Food inflation is currently at 2.9% and down from levels seen in 2025 . Food CPI is above 2024, so Trump does not have bragging rights on Food inflation. “Food at home” is notably higher now than in 2024 with the 1% handles of that year while “Food away from home” is more mixed.

The food lines can be a mix of entertaining and depressing, but there is quite a range. Beef and veal at 15.0% with fresh fish and seafood at +5.7% are hitting the protein menu while +18.3% for coffee and +7.5% for candy and chewing gum are undermining those of us more inclined to caffeine and sugar stimulus.

We see some food lines facing pressures on packaging material costs with 5% handles in numerous canned products. Recent exemptions still show up in the YoY numbers but are easing in MoM trends (“exemptions” are another admission by the White House that the “buyer pays’).

The above table is just an add-on to the main Big 5 groupings and bring the two prior boxes to around 87% of the CPI index. The mix in the table represents regular items for many households with 4 higher, 1 negative, and 1 flat. The decline in Recreation Services CPI is notable on the discretionary spending side. Apparel edged higher but remains low. All the tariffs slapped on low cost labor countries from Mexico to Asia will make that Apparel line an interesting one to watch.

Internet Services ticking higher with phones in deflation is another interesting twist on where the major providers are seeing pricing power (or a lack of in the case of telephones). Airline fares tie into jet fuel prices and passenger volumes, and we saw a rise in airline CPI.

See also:

Existing Home Sales Jan 2026 2-12-26

Payrolls Jan 2026: Into the Weeds 2-11-26

Employment Jan 2026: Good Headline, So-So Mix 2-11-26

Retail Sales Dec 2025: Muted Year-End 2-11-26

Market Lookback: Monkey Business 2-9-26

Market Commentary: Asset Returns 2-8-26

Switzerland-US Trade: A Deficit that Glitters 2-3-26

US-Taiwan Trade: Risks Behind the Curtain 2-1-26

Market Commentary: Asset Returns 2-1-26

Trade Deficits: Math Challenge 1-30-26

China Trade: Shrinkage Report 1-28-26

Mexico Trade: Gearing up for More Trade Trouble? 1-27-26

Canada-US Trade: Trump Attack N+1 1-25-26

PCE Income & Outlays Nov 2025: Resilient Consumer, Higher Inflation 1-24-26

3Q25 GDP: Updated Estimate 1-22-26

Industrial Production Dec 2025: CapUte Resilience 1-17-26

Policy Mud on the Wall: Consumer Debt, Residential Mortgages 1-15-26

CPI Dec 2025: Sideways Calms Nerves – For Now 1-13-26

2025 Spread Walks and Multicycle Return Histories 1-5-26

Annual Return Differentials: HY vs. IG Across the Cycles 1-3-26

Total Return Quilt Across Asset Classes 2008-2025 1-2-26

Cyclical Histories: Will Facts Be in Vogue in 2026? 1-2-26

Market Lookback: Last Call for Unusual Behavior 12-22-25

Some CPI Histories:

Inflation: The Grocery Price Thing vs. Energy 12-16-24

Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23

Fed Funds – Inflation Differentials: Strange History 7-1-23

Fed Funds, CPI, and the Stairway to Where? 10-20-22

Automotive Inflation: More than Meets the Eye10-17-22

PCE Income & Outlays Nov 2025: Resilient Consumer, Higher Inflation

Glenn Reynolds, CFA — Sat, 24 Jan 2026 20:06:02 GMT

While the “soft” indicators such as sentiment/confidence have their value, the rubber meets the road in how households spend relative to their income levels. Sometimes the higher spending is by choice (recreation) and sometimes by necessity (health care). The income and outlays data for Nov still shows sequential MoM growth in personal consumption expenditures (PCE) running ahead of income growth.
Growth of +0.5% for total PCE, 0.7% for goods, and services at +0.4% outpaced disposable Income growth at +0.3%. The personal savings rate ticked lower to 3.5, down from 5.5% as recently as May.
PCE inflation ticked higher YoY to +2.8% in Nov from +2.7% in Oct for both headline PCE prices and Core PCE. That is going in the wrong direction, and fresh tariffs would not have helped with the USMCA also up for review by midyear and Trump threatening both nations already. Canada was threatened with 100% tariffs on Saturday. The headline PCE price index of +2.8% is up from 2.3% in April with Services stubborn at +3.4% and Energy Goods and Services moving notably higher to +4.1% in Nov from 2.2% in Oct and even deflation as recently as August.
We will find out in later releases how consumers felt about Trump losing his mind and threatening to invade a NATO ally. Trump stepped back from the brink for reasons that are more mired in disinformation than the reality of what he factually got in return. Someone (not just the equity markets) must have conveyed to Trump that his action gave the largest trading partner (EU) the domestic political cover to go toe-to-toe in a trade war where everyone loses.
A fresh trade war where the EU and perhaps later Canada and Mexico fight back could unsettle Trump’s FOMC ambitions if the Senate held up appointees while the market also could cast its vote on the long end of the yield curve. Disaster averted for now.

The above chart updates the time series for “fed funds minus core PCE.” The PCE inflation metric tends to be a focal point for the FOMC and economists, but the pressure on energy costs (notably electricity and utility piped gas) and food inflation are stimulating household attention spans in a midterm election year.

The long-term median on the FF vs. PCE differential is 1.5%, but recent easing has sent that metric down by almost a half point to 0.84. The Trump saber-rattling focuses on an immediate move to negative real fed funds rates by the Fed, but that is easier said than done with inflation well above target and the economy doing better.

The FOMC rhetoric will not get easier with Fed independence under siege and SCOTUS rulings pending. The macro story has been waiting for top line fixed investment numbers to kick into gear to back up all the talk on capex commitments. Gross Private Domestic Investment is not adding much at all to this point (see 3Q25 GDP: Updated Estimate 1-22-26).

Finding cyclical trigger points for recession or contraction…

As we have often highlighted in the past, historical cycles from the early 1990s through the 2-month COVID contraction show that it takes quite a bit of pain to cause an economic recession. Two of the longest expansions in history were brought down by crises.

The decisions on timing out of NBER on recession timelines tend to lag the economic “events” by substantial periods (see Business Cycles: The Recession Dating Game 10-10-22). It is hard to find a trigger point for a recession at this point. We just avoided one as Trump missed a self-inflicted crisis by threatening to invade a NATO ally and starting a trade war.

For the past trigger points, we saw an unfolding housing sector bubble in 2006 that led to a housing implosion and systemic banking crisis at the end of 2007. That brought the longest recession since the Great Depression. Before that, the TMT bubble implosion brought an end to what was at that time the longest expansion. That tech bubble recession (March 2001-Nov 2001) was mild and brief but brought the hyper-easing by Greenspan discussed in other commentaries (see Greenspan’s Last Hurrah: His Wild Finish Before the Crisis 10-20-22).

There are plenty of cyclical stories to tell whether it be around economic cycles, monetary cycles or “credit cycles” with the occasional tendency of originators and fee generators to go off the rails (see UST Moves: 1988-1989 Credit Cycle Swoon 10-20-23, UST Moves: The 1990-1991 Risk Factor Pig Pile 10-24-23).

The bull markets of the 1980s gave way to contraction by the summer of 1990 as the cumulative effects of an oil patch crisis, an S&L crisis, leveraged buyout excess with dubious lending standards in LBOs and real estate, and securities industry stress (Drexel Chapter11, First Boston bailout by Credit Suisse, Lehman bailout by Amex, GE bailout of Kidder). That all took a toll and was inflamed by Iraq invading Kuwait and causing a fresh consumer scare and a brief oil shock.

The most recent rise in recession odds was fall 2022, but the consumer kept spending and payrolls were impressive (see Unemployment, Recessions, and the Potter Stewart Rule10-7-22). Biden’s single term joined Clinton’s two terms as the only Presidential administrations with no recession months going back 60 years.

The above is a long way of saying that the largest, most diversified, and most service-intensive economy in history is hard to derail as hard as Washington and whatever idiots (from either party) might try. Going to war with NATO countries would have done it. All Trump had to say in the midst of all of that incoherent Davos blather was “we will not use force to take Greenland.” That took a big cyclical trigger for multiple trade wars off the table.

Extrapolation to speculative outcomes is very subjective, but starting a war with a NATO nation would make the top 3 moronic moves of all time in the 250-year history of the US. The EU will get a gut-check on cowardice as they seek to avoid stooping to the level of the Senate GOP.

The above chart updates the long-term time series from 1972 for PCE vs. core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (below the current 2.8%) and the 2.5% core PCE median (vs. current 2.8%). That is dramatically better than where we came from in 2022 but still well above the 2.0% target.

The Nov 2025 PCE numbers are at reasonable levels in long-term context, but they are in somewhat of a stall with numerous key lines going in the wrong direction. The 2.8% is well above the 2.3% posted in April, and the flowthrough effect of tariffs are hard to deny. Even if one seeks to embrace the “one-time event” theme, that higher price levels still can bring reduced purchasing power for select line items – subject to a household’s typical “basket” (coffee drinkers and beef eaters take note). The supplemental market-based PCE metric was +2.5% in Nov vs. 2.0% in April.

In the move from early spring to Nov 2025, we see Goods moving from -0.3% deflation to +1.4% inflation. We see Energy Goods and Services move from -4.2% deflation in April to +4.1% inflation in Nov 2025. Services remain sticky at +3.4% in Nov, down slightly from +3.5% in April. When you hear the refrain of “prices are way down” in the White House rambling routines, it is simply not true.

We have a few timeline charts that we like to include with our PCE updates as a reminder of how income and consumption framed up coming out of the COVID crisis with its many glaring structural imbalances in supply and demand (remember empty used car lots?).

While old school inflation economists will religiously chant “all inflation is monetary” just substitute “purchasing power” for inflation and you can leave the lecture hall and get back to the sea level reality of how much smaller your goods and service basket might be after prices climb. The semantics of inflation vs. affordability tends to get garbled in all the rhetoric – especially when financing costs get ignored.

The DPI waves in the stimulus and relief policies…

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still relatively quiet for Disposable Personal Income relative to the hyperactive COVID stimulus actions and clean energy legislation.

We like to include this chart and the following longer timeline just given the heavy mix of disinformation and politically axed story lines we constantly hear from Trump on Biden being the cause of all the macro problems during 2025 (Putin oil and gas shock anyone?).

Excess stimulus was definitely a major factor in driving supply-demand imbalances coming out of COVID. That said, you would be hard pressed to find a sentence coming out of Trump’s mouth – or any of his rather vocal team – that speaks to the Russian invasion of Ukraine in Feb 2022 that roiled the energy markets with the spike in oil and gas prices. While that can be seen as the same old ugly politics, the eerily close relationship of Trump with Putin has only become more worrisome across time with Trump’s “friends and family” collection (e.g. Witkoff) thinking about the dollars to be made in Russia in the future.

The stimulus overload of 2021…

Looking back from 2019, the COVID crash brought ZIRP and a fresh game clock after the vaccine. The 2021 period was a big macro rebound in GDP with pent-up demand off the charts. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike.

Oil was a problem after the Putin invasion of Ukraine in late Feb 2022, and inflation hit a high in June 2022 at +9.1% for CPI as a headline grabber (headline PCE at +7.1% in June 2022) before the steady inflation decline to current rates. Core PCE had dueling peaks at +5.6% for Feb 2022 and Sept 2022. Oil shocks brought back less-than-fond memories of 1974 (late 2023 Arab Oil embargo) and 1979 (Iranian oil crisis) that fed stagflation pain.

The COVID relief binge…

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentioned that Dec 2020 check since it was easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade war risk that just flared up again in recent days (EU vs. US), it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas.

So far, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. That has mitigated the damage, but that de facto submission could come back to haunt some major trade partners if others run for office with a “get tough” election pitch.

We face a review of the USMCA dead ahead, and Trump’s relations with Canada and Mexico are worse than ever. He has threatened to take military action against Mexico around the cartels while Canada, which has been an annexation talking point using “economic coercion” has many of the attributes that Trump praised in Greenland around “arctic security.” Canada is also a critical supplier of natural resources as we have addressed in past trade commentaries (see US-Canada Trade: 35% Tariff Warning 7-11-25, Trade Exposure: US-Canada Import/Export Mix 2024 2-7-25).

With Carney standing up to Trump at Davos and looking to China and EU to broaden trade partner diversity, Trump is gunning for Canada. Trump has also been issuing cartel military threats against Mexico, so the sovereign rights topic could also go down a dark path there. Lurking in the “Donroe Doctrine” rhetorical noise are threats against Colombia and Panama.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2019 through Nov 2025. It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE. Table 1 in the monthly PCE release shows total dollar amounts on each line.

The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings. PCE growth has outpaced DPI since spring 2025. As of Nov 2025 we see PCE growth higher than DPI for 7 straight months. That came after 3 of the first 4 months of 2025 saw DPI ahead of PCE.

Any reader of Table 1 can simply tick off which lines might come under pressure in the coming months. Examples include expense lines such as Medicaid (post tax bill) or durable goods that face tariffs.

The above chart updates the savings rate time series across time. It is one of those data series that seems to be on the other side of serial revisions. The current 3.5% is dramatically below the long-term median of 6.8% as shown in the chart. The old adage of “never bet against the US consumer” is backed up by what we are seeing so far since COVID – regardless of who is in office.

We have looked at the savings rate dynamics in earlier commentaries (see Savings Rates: Context Across the Cycles 10-27-23). The savings rate peaks in times of worry (occasionally panic) as evident in the chart above. As of now, households are clearly spending even if some might come to regret it when credit card bills come due.

Among notable savings rate increases as households played defense, we see the period leading into May 1975 was no picnic after the massive stagflation bout. The same was true in Nov 1981. Dec 1992 had a raft of issues as the commercial real estate bubble was bursting (and hammering some banks), the leveraged finance boom was on the back end of the default cycle, the thrift crisis effects were still playing out across some major regional economies (notably TX and CA), and the regional oil patch pain that had come home to roost in 1987-1990 was lingering.

See also:

3Q25 GDP: Updated Estimate 1-22-26

Industrial Production Dec 2025: CapUte Resilience 1-17-26

Existing Home Sales Dec 2025: Getting up off the Mat? 1-16-26

Policy Mud on the Wall: Consumer Debt, Residential Mortgages 1-15-26

CPI Dec 2025: Sideways Calms Nerves – For Now 1-13-26

Payrolls Dec 2025 and FY 2025: Into the Weeds 1-10-26

JOLTS Nov 2025: Job Openings and Hires Down, Layoffs Lower 1-7-26

2025 Spread Walks and Multicycle Return Histories 1-5-26

Annual Return Differentials: HY vs. IG Across the Cycles 1-3-26

Cyclical Histories: Will Facts Be in Vogue in 2026? 1-2-26

Total Return Quilt Across Asset Classes 2008-2025 1-2-26

Cyclical Histories: Will Facts Be in Vogue in 2026? 1-2-26

3Q25 GDP: Morning After Variables to Ponder 12-27-25

Durable Goods Oct25: Core Capex Still in Gear 12-23-25

Market Lookback: Last Call for Unusual Behavior 12-22-25

3Q25 GDP: Morning After Variables to Ponder 12-27-25

CPI Dec 2025: Sideways Calms Nerves – For Now

Glenn Reynolds, CFA — Wed, 14 Jan 2026 04:51:53 GMT

Are we there yet?

The CPI release did not bring much of a catalyst for more or less worry in either direction since much of the action still lies ahead. Services at 64% of the index and 3.3% YoY remains a sticky line item that will remain a headwind to material progress toward the 2% target area.
CPI ex-Shelter at 2.4% is reassuring since it ticked lower sequentially from 2.6%. The less comforting fact of life is that corporate America still faces a lot of planning around the pricing of tariffed goods with the need to handicap price increases or cost cutting. Tariff mitigation offsets in turn can bring payroll risk and capex reassessment.
The minimal health care insurance CPI of -0.5% YoY raises eyebrows. Health care inflation is the wildest of the wildcards as health insurance premium spikes will not get into the numbers until further into 1Q26.
Oil is another factor that can always move the needle on CPI (despite the fact that Trump never mentions Putin’s invasion in his diatribes on Biden inflation), and we are entering another one of those periods of oil price uncertainty with Venezuela chaos and a brewing mess with Iran.

The above chart updates the historical relationship between fed funds and CPI. It’s worth keeping in mind that Trump would like this relationship to be flipped with fed funds below 1% as he has stated in some past comments. That would bring material negative real fed funds. That is not a relationship that the UST slope would smile upon. Steepening would likely be on the long end (controlled by the market) as well as the short end (controlled by the Fed).

The above chart updates the path of Headline CPI vs. Core CPI from the period just before COVID. The long-term medians are from Jan 1973 before the wild ride that began with the oil embargo that started in the Fall of 1973. As Trump speaks of the record inflation under Biden that he “inherited,” he neglects to highlight that in Biden’s last full month in office (Dec 2024), inflation stood at 2.9%. Trump’s starting point is Jan 2025 - not June 2022.

We would argue that Powell and the FOMC did a masterful job handling the inflation spike even if they were late to the party. It is worth highlighting only two Presidents since 1980 finished their term(s) with no recession months. Those two Presidents are Clinton and Biden.

The above chart updates our favorite “CPI ex” collection from Table 3 of the CPI release. With Shelter CPI of less analytical value than what the BLS might have planned on when it changed shelter CPI methodology in the early 1980s, we tend to see CPI ex-Shelter as the best headline number to consider. Shelter also comprises 35.5% of the CPI index, so a low quality, theoretical, derived number does not help clarity in calling the inflation pressure. That is why we prefer getting into the product and services lines.

Core CPI had been the favorite of the Fed, but Food (13.7% index weighting) and Energy (6.3% CPI index weighting) are among the two most important drivers of how households feel.

As we cover below, total food ticked higher in YoY metrics with total Food, Food at home, and Food away from home all higher. That does not make consumers happy. For Energy, oil prices have helped gasoline but as we cover in other charts below, Energy Services (7.7 % CPI YoY) such as Electricity (6.7% YoY) and Utility (piped) gas (10.8% YoY) were ugly outliers.

The special CPI aggregate for All items less food, shelter and energy, barely moved lower from 2.3% YoY to 2.2% so that is at least mild by the standards of inflation. That line also underscores the stable month.

The above chart is the main event of the CPI release with the Big 5 buckets posting an index weighting at around ¾ of total CPI. The most interesting lines to watch over the next few months will be Health Insurance and Energy. The new health insurance premiums cycle will move the needle if the BLS is remotely accurate in their measurement.

Energy could go back into one of those modes where military actions create questions around a big move. Whenever Iran comes up, the headlines around OPEC supply logjams (Strait of Hormuz) always get airtime before it fades (unless it doesn’t). That could get tested again if the fanatical leadership of Iran gets painted into a corner. The threat to them now is higher than bombing with “regime change” chatter in the air. We have seen this movie before (in 2003).

We rolled up our own Automotive CPI mix above to remind people what a dominant role the cost of a vehicle plays in the life of so many US households in what is a “driving country.” The 11.5% mix of CPI in the chart excludes gasoline, which would move automotive index CPI share ahead of food (see Automotive Inflation: More than Meets the Eye 10-17-22). Shelter remains by far the leader in CPI index share.

The new vehicle CPI is down closer to zero at 0.3% as the OEMs have been very disciplined and eaten the costs to protect strong sales volumes and healthy retail networks. Those decisions will be revisited this year as the OEMs work with suppliers and watch consumer demand. The good news for tariff policy is that the OEMs are spending billions in capex to move more production capacity back to the US

.The above chart details some popular line items in the life of US households. Recreation Services rose notably to 4.0% this month. That can be a “glass half full” inflation issue since it also says consumers are spending on such discretionary items.

A big question into 2026 is how Apparel will play out given the tariffs on ‘labor arb” trading partners in Asia. At 0.6%, Apparel CPI has not made a dent yet even after the holiday season. That will be a line to watch. Food, electric bills, heating the home, and filling up the gas tank can wag voter sentiment in an election year. That also applies to apparel. We do not see likelihood of material reshoring of Apparel to the US.

JOLTS Nov 2025: Job Openings and Hires Down, Layoffs Lower 1-7-26

2025 Spread Walks and Multicycle Return Histories 1-5-26

Annual Return Differentials: HY vs. IG Across the Cycles 1-3-26

Total Return Quilt Across Asset Classes 2008-2025 1-2-26

Cyclical Histories: Will Facts Be in Vogue in 2026? 1-2-26

3Q25 GDP: Morning After Variables to Ponder 12-27-25

Durable Goods Oct25: Core Capex Still in Gear 12-23-25

Market Lookback: Last Call for Unusual Behavior 12-22-25

Existing Home Sales Nov 2025 12-21-25

November CPI: Tricky Navigation 12-18-25

Some CPI Histories:

Inflation: The Grocery Price Thing vs. Energy 12-16-24

Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23

Fed Funds – Inflation Differentials: Strange History 7-1-23

Fed Funds, CPI, and the Stairway to Where? 10-20-22

Automotive Inflation: More than Meets the Eye10-17-22

November CPI: Tricky Navigation

Glenn Reynolds, CFA — Thu, 18 Dec 2025 21:29:25 GMT

Row faster.

After a Sept PCE reading that was going the wrong way in YoY numbers along the major line items (food, energy, goods), the headline and core CPI numbers moved more comfortably below the 3% line in Nov. Trump can now say Nov headline CPI is below Dec 2024 CPI (Biden’s last full month). That was not the case in September (see PCE, Income & Outlays: Calendar Gap Closing 12-5-25, CPI September 2025: Headline Up, Core Down 10-24-25).
The affordability challenge remains but looks better in this month’s release. The next major challenge will be the direction of health care with the premium reset after the ACA hammer comes down. Total Energy CPI remains high at +4.2% despite some oil price support. Medical Care Services weighed in at +3.3% YoY, which is down notably from 3.9% in Sept. Health Insurance was only +0.6%. Those two lines will go into the “hang onto your hat” category as we wade into 2026 and the moving parts of health care premiums unfold.
There are always good and bad lines in these releases, and the bottom line is 2.7% headline CPI and 2.6% Core CPI have a lot going on under the hood. Positive inflation means prices are higher and will remain higher, so the “prices are down” nonsense needs deflation to be an accurate statement. No economist outside a straight jacket wants deflation. That said, prices are up overall. That is why they call it “positive inflation.”
For now, this CPI is good news and helps the easing bulls craft a story when taken in tandem with the weak Nov jobs performance (see Employment Nov 2025: Bad News is Bad News 12-16-25). As we go to print, we see the 10Y edging a few bps lower, but much lies ahead as more pricing decisions are made by buyers of goods under tariffs, and the health care (ACA premiums) fiasco flows into consumer budgets.
This best news is the decline in Food inflation YoY to 2.6% from 3.1% in Sept and the worst news is the increase in total Energy inflation to +4.2% in Nov from +2.8% in Sept with Electricity at +6.9%, Utility (Piped) Gas Services at +9.1% and Fuel Oil at +11.3%. Gasoline at +0.9% takes the edge off, and there are more than a few forecasters calling for oil to collapse, which in turn would be a windfall for the consumer.

The above chart updates the key goods and services CPI lines we break out each month. They add up to around 75% of CPI. This month we will skip the long-term timelines and stay in the product groups. For the Headline vs. Core history and fed funds vs. headline CPI relationships (see CPI September 2025: Headline Up, Core Down 10-24-25).

We highlight that the above chart details the weighting based on Sept numbers since October metrics are not available. The relative dominance of Shelter at over 35% of the CPI index weighting puts an asterisk on the number, so CPI ex-Shelter is a good proxy as detailed further below.

When affordable housing comes up as a topic, the cash economics have very little to do with the shelter CPI number given the changes back in the early 1980s on how shelter CPI is measured. We have covered that in past commentaries.

The shelter CPI is a derived theoretical number tied to rent (“Owners Equivalent Rent” or OER). That is unlike the data you would see in the late 1970s tied more to price and mortgage rates. Either way, housing affordability needs lower mortgage rates and more supply. That challenge remains as does the need to unlock more existing home sales. NAR’s existing home sales report will be released tomorrow.

The reality for the homebuyer can be more simply framed with the questions: “How much does the house cost?” and “What are my monthly payments? That math is still brutal in the post-COVID cycle.

It is easy enough to dig into the line items to see some tariff impacts in some of the goods line items such as “living room, kitchen, and dining room furniture” (+4.6%), “tools, hardware and supplies” (+5.6%), and “audio equipment” (+10.2%). We see “women’s outerwear” (7.4%) and “women’s dresses” (+5.6%), but those and other product line CPI measures will be playing out gradually across 2026. What the tariffs are costing small business lines and retailers on the “cost of sales” line is a slow and steady pain analysis.

Those of us that are heavy coffee drinkers (+18.8%), eat meat (+8.9 with +15.8% beef and veal), like sugar and sweets (+6.8%) will pay more, but the good news is that Food at Home is down to +1.9% YoY from +2.7% in Sept. “Frozen fish and seafood” weighed in at +11.6%. Eggs are down by -13.6% now that Trump has cured avian flu (he looks great in a white coat, sets off the orange).

“Food Away from Home” at +3.7% (flat to Sept) is more stubborn but has more moving parts with costs to recapture. The “Energy prices are down” Jedi Mind Trick about oil does not change the reality that total Energy inflation remains a problem at +4.2% despite only +0.9% on gasoline. Energy Services overall weighed in at +7.4%.

We always look to the adjusted CPI aggregates in Table 3 for some other vantage points. “All items less shelter” at 2.6% is above the Dec 2024 level of 1.9% while “All items less food, shelter, and energy” ticked up to 2.3% in Nov 2025 from 2.1% in Dec 2024.

For tariff signals, we see Durables at +1.5% vs. the deflation of Dec 2024 and Dec 2023. Nondurables posted +2.0% or almost 2x the Dec 2024 level of 1.1%. In other words, the supplier chain issues are still complex and subject to the test of time.

For Services, the mid-3% handle mix of the various services lines above continues to challenge the price mix across various layers presented above.

See other Inflation Related:

PCE, Income & Outlays: Calendar Gap Closing 12-5-25

Retail Gasoline Prices: Biblical Power to Control Global Commodities 11-13-25

CPI September 2025: Headline Up, Core Down 10-24-25

PCE August 2025: Very Slow Fuse 9-26-25

FOMC: Curve Scenarios Take Wing, Steepen for Now 9-17-25

CPI August 2025: Slow Burn or Fleeting Adjustment? 9-11-25

Producer Price Index: A Snapshot of the Moving Parts 8-14-25

CPI July 2025: Slow Erosion of Purchasing Power 8-12-25

PCE June 2025: Prices, Income, and Outlays 7-31-25

Employment Cost Index 2Q25: Labor in Quiet Mode 7-31-25

CPI June 2025: Slow Flowthrough but Starting 7-15-25

PCE May 2025: Personal Income and Outlays 6-27-25

CPI May 2025: The Slow Tariff Policy Grind 6-11-25

Employment Cost Index 1Q25: Labor is Not the Main Worry 5-1-25

Inflation: The Grocery Price Thing vs. Energy 12-16-24

Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23

Fed Funds – Inflation Differentials: Strange History 7-1-23

Fed Funds, CPI, and the Stairway to Where? 10-20-22

Automotive Inflation: More than Meets the Eye10-17-22

FOMC: Dot Plot Scatters for 2026

Glenn Reynolds, CFA — Wed, 10 Dec 2025 22:44:58 GMT

Pollock possible Fed Chair for 2026 planning.

The Dec FOMC meeting posted the expected -25 bps cut, but the expectations show a lot of data work and plenty of tension ahead for the FOMC in 2026 with the January meeting a warmup ahead of Fed regime change.
With Trump’s attempted takeover of the Fed and desire to kneecap Fed independence underway, the dot plot mix for Dec 10 highlights that more of the members will not hesitate to aggressively deviate from “consensus.” That comes at a time when the White House is saying “prices are lower” even with aggregate positive inflation. The FOMC will have a hard time ignoring what they know even if that is a cornerstone of Trump economic policy these days (“prices lower, inflation lower, affordability con job,” etc.)
The Dec 2025 dot plot forecast for 2026 showed the Gang of 19 with 3 votes for 1 hike in 2026, 4 votes for no change, 4 votes for 1 cut, 4 votes for 2 cuts, 2 votes for 3 cuts, 1 vote for 4 cuts, and 1 for 6 cuts. 2027 forecast is not much better. What could possibly go wrong?
The biggest median forecast changes from the September forecasts in the new Dec 2025 SEP report was the +0.5% increase in 2026 GDP to 2.3% from 1.8%. The PCE inflation forecast was moved down to +2.4% from +2.6% while Core PCE was notched lower to +2.5% from +2.6%. That is still well above target. The unemployment rate was left flat at 4.4% (which is low in historical context) and the fed funds rate median forecast was unchanged at 3.4% (but across a wider range of forecasts).
The overall macro forecasts do not add up to recession or material macro shortfalls from the consumer or fixed investment. Monetary “implementation” piled onto the relative dove-fest with news of a modified QE Lite for T Bills to boost liquidity and reduce any potential short term rate pressure in money markets (and thus the banks). While this is often described as “plumbing,” it is the bank system that controls the faucets. The Fed controls the liquid in the pipes.

The above chart updates the notable period of shapeshifting for the UST curve since the UST 10Y peak (10-19-23). The period above runs across the FOMC easing that started in Sept 2024 ahead of a bear steepener from Sept 2024 to the current 12-9-25 UST curve. That timeline saw a lot of action from the short end to the long end as we covered in our UST commentaries.

We include the Tuesday (12-9-25) close for UST ahead of today’s modest move. As we wrap the day, we see the 3M -5 bps lower, the 2Y just over -7 bps lower, the 5Y at -4 bps, the 10Y at -3 bps, and 30Y -1.5 bps. The action in the curve needs to be fed a lot more data and more macro noise (e.g. final Fed Chair selection).

Besides payroll and CPI ahead with some long-awaited 3Q25 GDP data, the market will face swirling rumors around the Fed and whether it will be Hassett. It is not 100% certain yet that he will get the Westminster “Best in Show” ribbon in a highly competitive lapdog competition.

The above chart updates the wide band from the COVID UST curve at the end of 2020 to the 10-19-23 peak on the 10Y following the March 2022 end of ZIRP and eventual move into easing mode.

The above chart offers a more granular set of details on the YTD 2025 UST deltas. As we head into 2026, we are having a hard time seeing how this can be replayed with highly unpredictable inflation. If you want to bank on more easing, even if just by Trump “policy by fiat,” through one of his hand-picked Muppets, you can get the front end moving lower, but the dot plot still says there will be a fight over the handicapping for 3 cuts.

Looking further out the UST curve, this is where the UST supply-demand imbalances and inflation threats remain in place. A cratering of oil – which is a popular forecast for some – would be good news for inflation but also bring a “giant tax cut” that would get the consumer feeling good again. A stronger consumer plus tariff effects with healthy demand could get the inflation debate reheated.

With Powell talking about tariffs as a cause of price pressure in goods today, we can assume that Trump will have a litmus test for any new Fed Chair that no such words can be uttered – ever. We are still sticking with the 3M to 10Y steepening scenario and expect the 2Y to 30Y to stay steep (see The Curve: Flying Blind? 11-24-25).

JOLTS: Goldilock’s Ugly Twin 12-9-25

Market Commentary: Asset Returns 12-7-25

Mini Market Lookback: Data Digestion 12-6-25

PCE, Income & Outlays: Calendar Gap Closing 12-5-25

Credit Markets 12-1-25

Mini Market Lookback: Back into the June 2007 Zone 11-29-25

Durable Goods Sep 2025: Quiet Broadening of Core Capex 11-26-25

Retail Sales September 2025: Foot off the Gas 11-25-25

The Curve: Flying Blind? 11-24-25

Mini Market Lookback: FOMC Countdown 11-23-25

Employment Sept 2025: In Data We Trust 11-20-25

Payrolls Sep25: Into the Weeds 11-20-25

Mini Market Lookback: Tariff Policy Shift Tells an Obvious Story 11-15-25

Retail Gasoline Prices: Biblical Power to Control Global Commodities 11-13-25

Aug 2025: Tough math when “total unemployed > job openings” 9-30-25Mini Market

Mini Market Lookback: All that Glitters… 11-8-25

Mini Market Lookback: Not Quite Magnificent Week 11-1-25

Synchrony: Credit Card Bellwether 10-30-25

Existing Home Sales Sept 2025: Staying in a Tight Range 10-26-25

Mini Market Lookback: Absence of Bad News Reigns 10-25-25

CPI September 2025: Headline Up, Core Down 10-24-25

General Motors Update: Same Ride, Smooth Enough 10-23-25

Mini Market Lookback: Healthy Banks, Mixed Economy, Poor Governance 10-18-25Mini Market Lookback: Event Risk Revisited 10-11-25

Credit Profile: General Motors and GM Financial 10-9-25

Mini Market Lookback: Chess? Checkers? Set the game table on fire? 10-4-25JOLTS

Lookback: Market Compartmentalization, Political Chaos 9-27-25

Employment Cost Index 3Q25: Slowing but Above CPI

Glenn Reynolds, CFA — Wed, 10 Dec 2025 18:54:45 GMT

Don’t worry! I got your back on affordability!

At +3.5% YoY, the latest quarterly Employment Cost Index (“ECI”) report shows the ECI moving lower sequentially from 2Q25 at 3.6% and from Sept 2024 at +3.9%. That complicates the affordability debate and Trump’s “Happy Days are Here Again” roadshow. (Simplifying the Affordability Question 11-11-25).
The +3.5% wage rate comes alongside stubborn inflation including 3% handle inflation for total Food in the Sept CPI report and rising YoY inflation for Food and Energy in the most recent PCE report (see PCE, Income & Outlays: Calendar Gap Closing 12-5-25, CPI September 2025: Headline Up, Core Down 10-24-25). Purchasing power has declined in many areas even with wages rising.
In one of the lesser Jedi Mind Tricks of our time, the fixation on national retail gasoline prices gets a lot of air time (see Retail Gasoline Prices: Biblical Power to Control Global Commodities 11-13-25). We heard this again on Trump’s speech circuit last night with the magic “$1.99 per gallon” fantasy. As we ego to print, the AAA index price nationally is $2.94, down from $3.00 a week ago.
Crude oil volatility is largely outside the control of White House policy other than any effort to let Russian supply loose and throw Ukraine under the tank. The focus on gasoline is part of the effort to pretend that electricity inflation (+5.1% in Sept CPI) and Utility Piped Gas (+11.7% in Sept CPI) are not part of the affordability challenge. Pretending Putin did not have the dominant role in the spike in oil, gas, and gasoline in 2022 requires a suspension of disbelief.

The time series for ECI is plotted above, and the post-COVID spike is clear enough as the ECI shot up to the 5% handle zone. The great reopening made for good supply-demand dynamics for labor.

The current compensation growth lines for workers are in fact trending down across the past year and sharply from 2022, so of course Trump cited them as going higher in his rally speech last night. Absolute wages are “higher” (as are consumer prices), but the rate of wage/compensation growth is slowing while many consumer lines are seeing inflation rise. Headline CPI was in fact higher in Sept 2025 than Dec 2024 (see Simplifying the Affordability Question 11-11-25).

For the rolling 3 months, the rate ticked down for civilian wages from +1.0 to +0.8%. The 12-month YoY rate is at +3.5% which is down from +3.9% in 3Q24.

The ECI release has many angles on total comp, wages, and benefits. For example, state and local government workers were down to 3.5% for wages vs. 4.6% in 3Q24. Private industry wages were +3.6% in 3Q25 vs. +3.8% in 3Q24. That means a “lower” rate of increase – not higher.

You could argue that the recent set of numbers in ECI help the FOMC story on pricing pressure (tariffs are still the main event), but it does not tell a good story about worker’s affordability challenges.

In last night’s speech, Trump again cited Trump 1.0 as the greatest economy in US history and anywhere in the history of the world. That one never gets old (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24). Once again, he cited his view that “prices were down” despite positive inflation. That is unusual math. He tends to use the 2022 inflation spike as his starting point when Dec 2024 (or Jan 2025) is where he came in.

Wages battle inflation…

Meanwhile, inflation is trending higher since Dec 2024 for Food and Energy as the two lines most experienced by households on a daily basis. The political risk tied to food and energy is high, and the White House is scrambling to take pressure off with tariff revisions (notably such lines as coffee and beef). That will ease consumer pain but also put the lie to the cornerstone of Trump’s tariff pitch – the “seller pays.”

With energy, focusing just on gasoline is a sleight of hand for consumers to remember when they pay the electric or gas bill. Crude oil is biased lower, but Sept gasoline deflation was lower than the deflation of Dec 2024 in Biden’s last full month. In the end, most expect oil and gasoline to keep moving lower on supply/demand balance for crude.

As we cover in our employment commentaries, the moving parts of supply and demand for labor are shifting again with mass deportation in a slowing economy. That slowing has been concentrated in the Personal Consumption Expenditure lines and Fixed Investment even if Bessent at al. like to play games with the distortion of import/export lines and changes in inventory in the “year of tariffs” (see 2Q25 GDP Final Estimate: Big Upward Revision 9-25-25, 2Q25 GDP: First Cut of Another Distorted Quarter 7-23-25). We await the first 3Q25 GDP data to arrive on Dec 23^rd).

The above updates the ECI vs. unemployment rates. The relationship is fairly obvious but also highlights how COVID is in a world of its own with the pent-up demand factor for labor as well as goods and services. The current ECI of 3.5% is well above the long-term median of 2.8% (from 2000).

Retail Gasoline Prices: Biblical Power to Control Global Commodities 11-13-25

Employment Cost Index: Labor vs. Capital …Tide Turning or Swirling? 2-1-23

CPI September 2025: Headline Up, Core Down 10-24-25

Inflation: The Grocery Price Thing vs. Energy 12-16-24

Presidential GDP Dance Off: Clinton vs. Trump 7-27-24

Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23

Savings Rates: Context Across the Cycles 10-27-23).

Past ECI commentaries:

Employment Cost Index 2Q25: Labor in Quiet Mode 7-31-25

Employment Cost Index 1Q25: Labor is Not the Main Worry 5-1-25

Employment Cost Index 4Q24: Labor Crossroad Dead Ahead 1-31-25

Employment Cost Index Sept 2024: Positive Trend 10-31-24

The Employment Cost Index June 2024 8-1-24

Employment Cost Index March 2024: Sticky is as Sticky Does 4-30-24

Employment Cost Index Dec 2023: Compensation Mixed Picture 1-31-24

Employment Cost Index Sept 2023: Expect the Expected 10-31-23

Employment Cost Index: Rings of the Redwood 7-28-23

Employment Cost Index: Slow Motion 4-28-23

PCE, Income & Outlays: Calendar Gap Closing

Glenn Reynolds, CFA — Fri, 05 Dec 2025 20:13:47 GMT

Time Jump: We are now back in Sept 2025

A relatively benign set of Sept numbers for PCE inflation still leaves headline PCE inflation and core PCE +0.8 above target at +2.8% for headline PCE (1 tick higher sequentially) and core PCE also +2.8% (1 tick lower sequentially) .
For those tracking calendar 2025 numbers under Trump vs. Biden’s last full month in office (Dec 2024), Trump’s headline PCE inflation is 1 ticks higher than Biden’s +2.6% while the Sept 2025 core PCE is 1 tick lower than Biden’s +2.9%.
In tracking the sequential MoM numbers for inflation signals, the Goods PCE price index has moved materially above recent months at +0.5% MoM vs. +0.1% in August and -0.1% in July. Nondurable Goods posted +0.7% MoM vs. +0.2% in Aug and -0.1% in July. So that signals upward price pressure in Goods.
Goods PCE inflation remains low on a YoY basis at +1.4% but keeps moving notably higher with each new month after being in deflation mode earlier in the year. As we have covered earlier, Energy Goods and Services were notably higher in Sept YoY at +2.7% and a YTD high – in contrast to Trump’s very vocal public statements to the contrary. Food is also higher at +2.4% in Sept and at a high in YTD 2025 (see Retail Gasoline Prices: Biblical Power to Control Global Commodities 11-13-25
Simplifying the Affordability Question 11-11-25)
Meanwhile, Services PCE price inflation YoY is ticking slightly lower sequentially to +3.4% from +3.6% in August and more notably lower from earlier in the year with +3.8% in Feb 2025.
Savings rates are around YTD lows at +4.7% and flat sequentially to August even if down from a high of +5.7% in April. Real disposable income was +1.9% YoY and running below real personal consumption expenditure (PCE) levels of +2.1%. That real PCE level of +2.1% is a low for the year. Durable Goods PCE was down the most to +2.1% from 3.8% in August and highs of +8.6% in March and +7.8% in April.

Given the focus on FOMC policy vs. consumer pressure tied to affordability, we listen to the political noise on the subject to try to filter the spin down to a few basics:

Higher is not lower.
Sideways is not lower.
Higher is not always “high” in historical context.
“Flat” headline can have a lot of moving parts higher, lower and sideways.
There are a lot of line items that matter more to some than others.
Sequential MoM trends can sometimes be more important than YoY.

When we consider the level of tightening that could guard the system against a return to the stagflation of 1980-1982 or 1973-1975, the relationship of fed funds to PCE (or CPI) is critical in terms of the Fed mission. So, the fact that Trump originally wanted to cut fed funds by 300 bps (give or take) was not historically a “prudent” (sane?) statement coming off the highest inflation cycle since the 1980-1982 double dip.

The “Fed Funds minus Core PCE” differential since 1973 offers a read on “real fed funds” and to what extent the Fed is engaged in “real” tightening as opposed to the “closet accommodation” that we saw in much of 2H22 when tightening was moving into higher gear but badly lagging inflation. Trump is essentially calling for negative real fed funds.

The long-term differential of core PCE vs. fed funds is +1.5%, and the differential now is +1.1%. That still leaves room for easing, but the final judgement on actions comes down to how you see the tariff threats, the supply vs. demand side of the equation for goods, payroll economics in a world of mass deportation, household inflation expectations, and what that might mean for stagflation risk.

A glance back at the stagflation years of periods such as 1973 or 1981 and the various
“prevent defense” moves of the 1980s remind us how aggressive the Fed felt the need to be. The idea that Trump would put in a “Fed head” with negligible capital markets experience, a few short roles as a “professional appointee” and time served in conservative think tanks is too similar to what he had planned for the BLS. The stakes for the Fed are dramatically higher than for the BLS, which is bad enough (see Happiness is Doing Your Own Report Card 8-1-25)

Fed independence will not be dead – yet – given the voting structure and “relative” operational independence, but it will clearly be “mostly dead” (to quote Miracle Max).

Fed independence is not dead. Just mostly dead. Mostly dead is slightly alive. - Miracle Max

The forecasts for lower rates and more FOMC cuts in 2026 could soon become a political decision more than an economically justified move, but that is the drama for late spring 2026.

The Sept 2025 PCE numbers are at reasonable levels in long-term context, but they are in somewhat of a stall with numerous key lines going in the wrong direction. The SEP 2024 report and dot plot kept the PCE inflation forecast for 2025 unchanged from June at 3.0% headline and 3.1% core. We still have 3 months to go for reported numbers (Oct, Nov, Dec). It will be very interesting to see how the Fed SEP report and ensuing commentary address these forecasts during a period of very limited economic releases with the shutdown fallout.

The dot plot and forecasts in September were not dovish by any stretch (see FOMC: Curve Scenarios Take Wing, Steepen for Now 9-17-25) and were not materially different from the June meeting (see FOMC Day: PCE Outlook Negative, GDP Expectations Grim 6-18-25). The next set of Fed moves in Dec and Jan decisions come at a time when Trump attacks on macro statistics and independent agencies are nothing short of alarming.

The White House game plan has devolved to attacking the data when it is not supportive or having hired guns investigate the mortgages of select officials who are not on Team Trump. We have a lot of talking heads currying favor with the White House, and we don’t expect a fresh edition of “Profiles in Courage” any time soon.

The above chart frames the long-term differential history between PCE and core PCE since 1972. The long-term differential is zero and we are currently at zero. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s. We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23). Food and inflation have been near the top of the affordability political rage-fest. The fact is both energy and food are higher in 2025 and again in the current PCE report.

The above chart looks at a shorter timeline from 1997 to offer a better visual scale separate from the wild 1970s and 1980s. Debate in financial and economic circles rage on around whether the target should be 2.5% or 3.0% or in some other range. The above chart offers a reminder of how hard it is to get to 2.0% or below for headline PCE or core PCE. The earlier chart covers the timeline from the inflationary/stagflationary periods of 1973 to 1982 to hammer that home.

The “1997 to 2025” period also shows a rare stretch at or below the 2.0% PCE line and core PCE median. It took a lot to go wrong in that time horizon to cross that 2.0% threshold. The events along the way included tech bubbles bursting in 2000-2001, oil crashes in the late 1990s and the late 2014 to early 2016 period, and a systemic bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic was a new one for the modern capital markets.

The Biden politics and stimulus definitely had a major inflationary impact on pricing and supply-demand imbalances after COVID. That is also the case with the Russian invasion of Ukraine.

Energy has been in deflation mode for part of 2025, and that helped dampen the inflation headline numbers. As 2025 wore on, energy inflation has gone the other way and notably in areas such as electricity and piped utility gas (see CPI September 2025: Headline Up, Core Down 10-24-25, Simplifying the Affordability Question 11-11-25, Retail Gasoline Prices: Biblical Power to Control Global Commodities 11-13-25).

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income. We like to include this and the following chart just given the heavy mix of disinformation and politically axed story lines we constantly hear from Trump on Biden being the cause of all the macro problems at the end of 2025.

The stimulus overload of 2021…

Looking back before the start of this chart, the 2021 period was a big macro rebound in GDP off the COVID peak period. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike.

The COVID relief binge…

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. So far, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. That has mitigated the damage but that de facto submission could comes back to haunt some major trade partners if others run for office with a “get tough” election pitch.

Jacking up aluminum, steel, copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs in Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. Recent period brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture (making the world safe for “fat asses.”)

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2019 through July 2025. It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE.

One exercise to do from time to time is to look at Table 1 in the monthly PCE release for the granular dollar amount on each line. The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings.

Any reader of Table 1 can simply tick off which lines might come under pressure in coming months. Examples include expense lines such as Medicaid (post tax bill) or durable goods that face tariffs. It is always worth remembering that a tariff is a regressive tax that hits lower income consumers harder and the same for small businesses. The same is true in Medicaid costs based on the income brackets of Medicaid users. A loss of health care benefits and higher pharma costs is a zero-sum game with other consumption lines. The current ACA premium spikes will also be a zero sum “game” for many budgets.

The above chart updates the savings rate history with the latest number flat MoM at 4.7% after a 2025 peak in April of 5.7% (as revised). We have looked at the savings rate dynamics in earlier commentaries (see Savings Rates: Context Across the Cycles 10-27-23). Savings rates peak in times of worry (occasionally panic) as evident in the chart above. As of now, households are clearly spending even if some more come to regret it when credit card bills come due.

See also:

Credit Markets 12-1-25

Market Commentary: Asset Returns 11-30-25

Mini Market Lookback: Back into the June 2007 Zone 11-29-25

Durable Goods Sep 2025: Quiet Broadening of Core Capex 11-26-25

Retail Sales September 2025: Foot off the Gas 11-25-25

The Curve: Flying Blind? 11-24-25

Mini Market Lookback: FOMC Countdown 11-23-25

Employment Sept 2025: In Data We Trust 11-20-25

Payrolls Sep25: Into the Weeds 11-20-25

Mini Market Lookback: Tariff Policy Shift Tells an Obvious Story 11-15-25

Retail Gasoline Prices: Biblical Power to Control Global Commodities 11-13-25

Mini Market Lookback: All that Glitters… 11-8-25

Mini Market Lookback: Not Quite Magnificent Week 11-1-25

Synchrony: Credit Card Bellwether 10-30-25

Existing Home Sales Sept 2025: Staying in a Tight Range 10-26-25

Mini Market Lookback: Absence of Bad News Reigns 10-25-25

CPI September 2025: Headline Up, Core Down 10-24-25

General Motors Update: Same Ride, Smooth Enough 10-23-25

Mini Market Lookback: Healthy Banks, Mixed Economy, Poor Governance 10-18-25

Mini Market Lookback: Event Risk Revisited 10-11-25

Credit Profile: General Motors and GM Financial 10-9-25

Mini Market Lookback: Chess? Checkers? Set the game table on fire? 10-4-25

JOLTS Aug 2025: Tough math when “total unemployed > job openings” 9-30-25

Mini Market Lookback: Market Compartmentalization, Political Chaos 9-27-25

PCE August 2025: Very Slow Fuse 9-26-25

Retail Gasoline Prices: Biblical Power to Control Global Commodities

Glenn Reynolds, CFA — Fri, 14 Nov 2025 03:35:03 GMT

Let my oil prices go…

We look back across recent periods for retail gasoline prices given recent White House efforts to extol their retail gasoline performance. Retail gasoline prices have been very steady in 2025 but also on top of where the price was in Dec 2024. In other words, there has been little “improvement” from where the year began, so absence of bad news is good news.
As we look back across time, any US President who cites their ability to materially influence global supply-demand balances for oil over the course of a year have a very heavy burden of proof (as in it’s BS).
Beware when political leaders cite their mastery of retail gasoline but cannot articulate the OPEC supply policies, relevant production trends domestically, or simply ignore the demand side of the equation (China, US, EU).
Crude oil declines across 2025 have been hard on energy subsectors in the equity markets with the broad Energy ETF (XLE) and E&P ETF (XOP) among the bottom tier performers (see Market Commetary: Asset Returns 11-9-25). Oil price weakness has reflected supply threats from OPEC and record production in the US and Canada, which together have kept oil cost inputs in check for refiners. Major refiner equities (VLO, PSX, MPC) have trounced E&P operators on the soft crude oil prices.

Retail Gasoline Prices: Numbers, Not Adjectives

The above chart frames the weekly average US retail regular gasoline prices from the start of 2021 through current levels (Nov 2025). As we cover in our monthly CPI commentaries, the cost of gasoline, electricity, and utility piped gas is an important part of household budgets. The political spin by Trump on energy after the election setbacks is taking more than a few liberties with describing how the new team and new term has done on affordability.

In the unfolding affordability disinformation wars, the White House is running fast and loose on the facts of gasoline prices since 2021. We are still waiting for Trump to use the word PUTIN in the 2022 inflation story line, but we all know that is not happening.

The recent cycles of pain and gain in the oil and gas market have been stunning across the cycles. Multiple spikes from 1973-1974 and 1979-1981 culminated in a 1986 oil crash as global supply adjusted. After a debt-financed technology revolution (unconventional drilling, shale boom, etc.), a record number of bankruptcies shocked the markets from late 2014 into a multiyear stretch of credit pain. With that history, it is hard not to roll your eyes when someone says they can control the oil price trends from the White House.

Using recent gasoline prices to self-evaluate on affordability…

Current oil and gasoline prices are not a mystery, but they get turned into points of confusion in all the blather. Retail gasoline prices have been in a narrow range in 2025 and are essentially on top of where December 2024 ended. A lot of factors can go into how retail gasoline prices frame up around costs of feedstock “on the way in” (supply of oil) and also on the demand side (economic growth) and how that all translates into the pump price and other energy markets. For now, stability is a good thing in the macro story.

There obviously are a lot of problems in the qualitative dialogue around inflation levels narrowly and the concept of affordability more broadly. In the end, the self-congratulations have a political purpose. The question always comes back to the starting point of “What are the numbers as of now? What were they at the beginning?” We detail the price trends in gasoline in the charts herein. There has been no damage done YTD with Nov 2025 prices much like Dec 2024. “Absence of bad news” in gasoline is thus good news for consumers.

Inflation and affordability rages as the new debate (at least until we get new CPI data someday). Like tariffs and fact flow, the politics takes over. Earlier this week we looked at some simple factual questions (see Simplifying the Affordability Question (11-11-25). The reality is that inflation is getting moderately and steadily worse. Gasoline is at least helping, but that chart we reproduce below tells a story of “higher.”

Trump’s self-praise on affordability begs a simple question:

“Which CPI line items from the BLS report are higher or lower (in the latest CPI release for September 2025) relative to their respective CPI levels in Dec 2024 (Biden’s last full month?)”
Answer: Gasoline CPI was better in Dec 2024 than in Sept 2025 but both were good months with deflation.

As detailed in the next chart, which is a replay of the chart from the earlier piece, we see some of the inflationary pressures that need to be considered by the FOMC in December and again in the coming year in fed funds decisions. The FedWatch odds of a cut is now close to a toss-up with 50.7% probability as we go to print.

Our favorite line item above for a broad inflation focus is “All items less Shelter” (35% of the CPI index). As you can see in the chart, that number is higher. As a reminder, shelter inflation is not measured by the price of new and existing home sales. Since the early 1980s, shelter is a theoretical “cost of shelter” derived from rents.

There is no shortage of timelines to look at in terms of MoM CPI sequential moves in such headline products as beef and coffee and various tariffed vegetables. We see broad categories above almost all higher in Sept 2025 than Dec 2024 with critical categories such as Food, Energy, Medical Care Services, New/Used Vehicles, Durables, and Nondurables (see CPI September 2025: Headline Up, Core Down 10-24-25, CPI August 2025: Slow Burn or Fleeting Adjustment? 9-11-25). The granular lines in food or a range of goods require looking at the sequential trends to show how tariffs have flowed into the pricing trends into 2025.

The fact that the White House now appears to be foot-dragging on revised and updated CPI and payroll numbers highlights an intent to reduce clarity in the economic indicators. Such updates should be a high priority.

The screen media needs some data 101 or some spine transplants…

The main point in updating some of these data points is that the mainstream media fumbles the ball on the factual side in pressing for responses to real numbers from the White House and team (notably Bessent, who is working the media to massage perspective). The latest exercise seems more about butchering the “affordability” topic after it was cited as a key driver of the election setbacks for the GOP.

The hesitancy to take on the topic with more substance is in part out of sheer fear of Trump, who has cowed them with threats to everything from their license to litigation to banning targeted media from White House Q&A. Even CNBC has “gone softball” given the great success they have had in picking up “guest share” in appearances by GOP dignitaries. They have been successfully squeezing Fox in that regard, so softball Q&A has been a winning strategy.

Energy: Electricity and Utilities Piped Gas

The other critical parts of Energy include Electricity, which is getting a lot more airtime now as a topic given AI demand and a data center boom. The Q&A lets Trump get away with mumbling about oil without fielding a question on electricity or utility gas. Both are certainly going the wrong way this year and weighing on the affordability pressures.

As we have covered in our CPI pieces and as highlighted in the chart below, the other pieces of the Energy CPI metrics are not as indexed to OPEC even if global oil and gas indirectly ties into many aspects of the downstream customer. The trend higher in prices since the end of 2024 is clear.

Gasoline prices as a key driver…

The final chart offers more history on retail gasoline prices. In periods of extreme oil price volatility, life can get tricky. We look at some of the worst years since 2007 below. 2025 has been relatively calm vs. a year such as 2022 or during the madness of late 2014 to early 2016 when the Saudi price war saw the HY market slammed and upstream names saw a multiyear streak of record high default rates. For refining, the checklist of feedstock costs, product mix, inventory cycles, seasonality (e.g. peak driving season, heating season, etc.) still are all at the mercy of the timing of any oil shocks. We have had more than a few since the early 1970s.

In the chart below we frame some oil and gasoline stories from earlier cycles when the market saw more than a $100 Hi-Lo swing in oil from 2007 to 2016. That period also experienced the wild ride of the Saudi oil price war of late 2014 to early 2016. The mini crash in late 2018 was about supply-demand imbalances while the stunning COVID crash of 2020 saw negative WTI futures by April 2020. For 2025, affordability for gasoline has been flat so far in Trump 2.0. We broke out the YTD average for each year from 2021 to 2025 below.

While low gasoline prices in the CPI index is a positive factor at this point for households, history shows a lot can happen in a hurry, and there is little that White House policy can do about it. The oil price crashes of bygone years (4Q14 to 1Q16, COVID) can operate as a de facto “consumer tax cut” even if it crushes some regional economies in the oil patch. Always remember that with volatility, crashes are very often followed by what seems like a spike. Similarly, a spike sees supply adjust.

The supply pressure bias is up to OPEC unless the US decides to fall into a full-blown trade war with Canada as a huge supplier of crude oil to the US. That latter risk would be crazy, but there is a “lot of crazy” going on these days.

We would again highlight that Energy inflation is higher in Sept 2025 than Dec 2024. That does not seem clear to many. Whether that is lower deflation in gasoline CPI in Sept 2025 or higher inflation overall in Total Energy, you can slice and dice the timelines and CPI subsector lines any way you want. Oil, natural gas, gasoline, electricity, and utility piped gas are all part of the cost equation. In total, those CPI lines are higher and part of the affordability problem.

Simplifying the Affordability Question

Glenn Reynolds, CFA — Tue, 11 Nov 2025 20:02:59 GMT

“Hoax” and “Con Job” offer a mix of old and new words in the Trump verbal arsenal, so now the political rhetoric is using “affordability hoax” and “Democrat con job.”
The basic question, “Is inflation higher since Trump took office?” is worth an easy chart. Hard, factual numbers offer some clarity in the typically numbers-free dialogue. Even CNBC avoids the numbers to avoid rattling GOP guests.
The chart below includes a cross section and sampler of key CPI lines from the BLS CPI reports showing Sept 2025 and Dec 2024 CPI lines. We covered a broader list across all the months and some key groups already (see CPI September 2025: Headline Up, Core Down10-24-25).

No one is questioning whether inflation is lower now than in the Biden years. 2022 was the worst since the early 1980s. An important question when framing Trump’s performance on affordability is, “What progress was made in inflation up through the end of Biden’s term? And what has Trump done since?”

Jan 2025 is when the Trump policy journey began. From 2022 through Dec 2024, Trump had nothing to do with the factors that saw inflation plunge from the peak. One could arguably give some credit to the laws of supply and demand and the Fed for the impressive progress in CPI metrics by Dec 2024, which was Biden’s last month in office. The economic developments and Fed action contributed to the move in “CPI All items” to +2.9% in Dec 2024 (vs. +3.0% in Sept 2025).

Of course, Team Trump never says anything positive about Powell. He is after all not a captive loyalist. Trump also never cites the role of Putin’s invasion of Ukraine and what that meant for oil, natural gas, gasoline at the pump, or how much power costs. Trump does not ever say, “Russia illegally invaded Ukraine and started the war,” contributing to a significant spike in inflation. That at least gives context to Trump’s incomplete view on inflation.

A few of our favorite Trump statements from the past week:

“We have no inflation now.”

Actually, Trump can boast long-term median headline inflation now at 3%. Congratulations. Headline CPI was slightly lower in Dec 2024.

“Prices are much lower now.”

Trump needs to work on his definition of inflation. Inflation means prices are higher unless the economy is seeing deflation.

“Energy is lower. Oil is lower. Gasoline is lower.”

Trump should be careful in his use of the term “energy” since Electricity and Utility Piped Gas are in that bucket under “Energy Total CPI.” As of Sept 2025, Total Energy CPI was +2.8% vs. -0.5% in Dec 2024. In terms of the weighting, Total Energy CPI is 6.4% of the CPI index. Gasoline is 2.8% of that weighting with Electricity at 2.5% and Utility Piped Gas at 0.8%. Other fuel oils make up the remainder.

That means inflation for Energy Total was notably higher in the Sept 2025 CPI report than in Dec 2024. In Dec 2024, Electricity CPI was +2.8% vs. +5.1% in Sept 2025. Utility Piped Gas CPI in Sept 2025 was +11.7%. or more than double the +4.9% YoY in Dec 2024.

All in, energy CPI should not be on Trump’s bragging list. But the media fails to call him out.

A few other line items that matter to many:

Medical care services inflation: This is separate from the health insurance line, but Medical Care Services CPI in Sept 2025 was +3.9% vs. +3.4% in Dec 2024. Within that headline bucket, “Hospital and Related Services” was +5.8% in Sept 2025, above the +4.0% of Dec 2024. Given the direction of demographics and focus on Medicaid and Medicare policy from Washington, this medical care CPI trend is bad news. That said, these costs will be dwarfed by the problems of ACA premiums and broader budget setbacks in Medicaid (that is a lot of old people and sick children) but Health Care inflation is going the wrong way in a broad category that is 18% of GDP.
New Vehicles and Used Vehicles: New Vehicles posted CPI of +0.8% in Sept 2025 while in Dec 2024 New Vehicle CPI was -0.4%. Used Vehicle CPI was +5.1% in Sept 2025 vs. -3.3% in Dec 2024. So, the trend is going in the wrong direction under Trump. So far, the OEMs have been eating the tariffs and working on their game plan. However, the expectation is that we will see higher new vehicle inflation into 2026 at low % levels but attached to big ticket items with the average transaction price on a car around $50K.

The Biden fixation problems vs. the reality of now.

We don’t question whether the Biden term was a brutal one for inflation. That is why he lost the election after winning in 2020 by 7 million votes. When you have high inflation, you lose at the polls. Just ask Ford in 1976 or Carter in 1980. We tend to paint with a much broader brush on what economic forces drove inflation to 9.1% in June of 2022.

Unlike Team Trump, we have no problem highlighting what role Putin played in energy costs and the resultant multiplier effects across raw materials, power, freight and logistics, input cost pressure from ag to plastics, and higher food prices, etc. Anyone around during the 1979-1982 chaos and stagflation of late 1973 to 1975 knows the overriding force of spikes in oil and gas.

In sum, the Trump’s performance on affordability began in Jan 2025 not during 2022. He does not get credit for the journey from 9% handles to 2.9% CPI in Dec 2024. His policies began in 2025 and the record is in the numbers not in the word salad.

CPI September 2025: Headline Up, Core Down

Glenn Reynolds, CFA — Fri, 24 Oct 2025 18:27:54 GMT

Which one is the inflation target? (for PCE).

The last time we saw PCE in August the headline level was at +2.7% and core at 2.9%. The headline CPI for August was +2.9% and +3.1% core. The CPI for September had dueling 3% handles with headline CPI ticking higher to 3.0% and core ticking lower to 3.0%. In December 2024 (Biden’s last month in office), headline CPI was 2.9%, so the battle is a slow one to say the least. Trump gets no bragging rights in the 9-month CPI run.
Total Services CPI remains stubborn at 3.6% with Shelter at 3.6% with a CPI weighting in the overall index of over 35%. On a more measured note, the “All Items Less Shelter” CPI was only +2.7% or higher by +0.2%. That “All Items Less Shelter” CPI was only 1.9% in Dec 2024 in Biden’s last full month, so that is going in the wrong direction.
The post-tariff plan is to watch for outsized readings above 4% and to watch for sequential upticks in the rolling recent months. Notable headlines for “high readings” include Electricity at +5.1% YoY and Utility piped gas at +11.7%.
Total Food inflation at +3.1% (+2.7% for Food at Home, +3.7% for Food Away from Home) includes some highlight such as +5.2% on “Meats, poultry, fish and eggs” with the “Meats” category at +8.5%. The “beef and veal” subcategory posted +14.7%. Among other notable CPI readings were Apples at +5.3%, Bananas at +6.9%, and Canned Fruit and Vegetables at +5.0%.
For many of us, Coffee was the headliner at +18.9% YoY, which was driven heavily by global supply issues and Trump’s attacks on Brazil, where the US has a trade surplus but that government has jailed Trump’s “coup bro” (Bolsinaro, see US-Trade: The 50% Solution? 7-10-25). We also see “sugar and sweets” in the CPI lines at +6.7% with “candy and chewing gum” at +9.8%. There goes my coffee and Three Musketeers.

The above chart is our usual update of headline CPI across the cycles plotted against fed funds (monthly average updates per Y Charts).

Those of us who came of working age back in the 1970s stagflation years fully appreciate the caution of the FOMC around tariff effects on inflation and the impact on GDP growth. Their desire to come to grips with the flow-through effect of tariffs is rational and not partisan. Stagflation is the worst enemy from a policy alternatives standpoint, and that risk is not gone.

Slower growth (or GDP contraction) with a 3% handle could set off a debate of whether the word “stagflation” even applies. That is especially the case given the high bar for “ugly” set in the peaks of the 1970s and 1980-1982 double dip. Low growth and modestly rising inflation to us constitutes “stagnation + inflation” or stagflation. Having lived and worked through double digit inflation and some scattered 20% fed funds moments, we are in a very, very different discussion in 2025. That history that Volcker addressed is what has driven the price fixation of FOMC policy. Trump is not interested in that history. He wants lower UST interest expense for record borrowing and debt service needs.

The above chart updates the running headline CPI vs. core CPI from 2020 for a frame of reference that is heavily wagged by energy. We frame recent numbers vs. the post-1973 medians in the box in the upper left of the chart.

The simple statement is the current headline CPI is 1 tick below the long-term median from 1973 while the current core CPI is 1 tick above the long-term median. With Trump’s usual display of technical virtuosity and grasp of numbers, he frames this market as “we have no inflation.”

As someone who arrived in NYC in June 1980 with a 22% Misery Index in the market, these current numbers are high in the context of the new millennium but are quite low vs. inflation pain cycles of decades gone by. Those 1973-1975 and 1979 to 1982 bouts of volatility are just what the FOMC is determined to avoid. Trump is about immediate gratification (300 bps cut “now” was his demand heading into September).

The above table updates some of the “special aggregates” CPI index lines which get posted on Table 3 of the CPI release. The “CPI ex” collection always adds some value across high level sectors and makes some useful adjustments. The above table shows some reassuring levels in 2023-2024 in a key line such as “All Items Less Shelter” as the outsized derived line items such as “Owners’ Equivalent Rent” are worth excluding for some other angles. We have frequently discussed those shelter metrics in past commentaries.

The struggle in lowering headline inflation is that we live in a Services economy, and the Services CPI is very difficult to bring down below a 3% handle range. That sticky services inflation has been the case in shelter and energy services with electricity and utility piped gas a major challenge in the timeline.

The tariff challenges flow directly into goods and indirectly into services, and goods CPI are in fact low. That comes with the qualifier that Durable Goods are coming off deflation in 2024 and are now rising. For nondurables, we also see steady increases in the CPI line into 2025. Those moves in goods CPI lines to higher levels are not a coincidence. Tariffs play a role.

The Big 5 groupings above include our own version of the automotive mix (see Automotive Inflation: More than Meets the Eye 10-17-22). Energy has been helping the headline number with deflation in gasoline, but electricity and piped gas are at high inflation numbers. Crude oil remains weak to this point, and that helped consumers during the peak driving season. We see Food ticking higher in 2025 with some highlights noted earlier.

The dynamics of global commodities (supply vs. demand) is a wildcard in energy while Trump policies directly impact goods CPI numbers. This past week, the dynamics of upward supply pressures from the Middle East was greeted by Russian sanction uncertainty and how that might apply in Asia (India, China). The headlines are pushing the speculative premium on oil higher. As we go to print, WTI is almost at $62 vs. $57 on Monday.

For autos, the new vehicle CPI has stayed in check since the OEMs are eating the cost. That was no surprise and was a priority for the auto companies in supporting dealer retail sales and fleet volume. That will be a slow process to unfold, but vehicle prices will gradually move up in 2026. The average transaction price is around $51K at GM and sticker shock is creating a challenge for the “new vs. used” decision by car buyers on affordability. Used car CPI popped to +5.1% in September vs. +0.8% for new vehicles. Vehicle Insurance eased a bit this month after a heady run while more complex vehicles also have kept maintenance and repair costs high.

The medical care cost issues seem to be dwarfed now by the broader political issues from the tax bill and now the shutdown battle around the ACA and healthcare premiums for millions. Hospital and Related Services weighed in at +5.8% YoY in Sept.

The above table updates the “near and dear” checklist for many households. Recreation Services at 4.4% is at a multi-month high with the others mostly in check. Apparel is interesting in the tariff context given the low-cost labor arb targeting by Trump of Mexico and Asian economies.

The Apparel headline CPI YoY of -0.1% is clearly low even if we can all speculate on the pricing strategies of the sellers (are they eating the tariffs from their base of high margins?) or the simple fact that orders lag and working capital dynamics will not give us a clear read for a while into 2026. Anecdotal evidence of massive “sales specials” and deep discounting have been easy to find.

See other Inflation Related:

PCE August 2025: Very Slow Fuse 9-26-25

FOMC: Curve Scenarios Take Wing, Steepen for Now 9-17-25

CPI August 2025: Slow Burn or Fleeting Adjustment? 9-11-25

Producer Price Index: A Snapshot of the Moving Parts 8-14-25

CPI July 2025: Slow Erosion of Purchasing Power 8-12-25

PCE June 2025: Prices, Income, and Outlays 7-31-25

Employment Cost Index 2Q25: Labor in Quiet Mode 7-31-25

CPI June 2025: Slow Flowthrough but Starting 7-15-25

PCE May 2025: Personal Income and Outlays 6-27-25

CPI May 2025: The Slow Tariff Policy Grind 6-11-25

Employment Cost Index 1Q25: Labor is Not the Main Worry 5-1-25

Inflation: The Grocery Price Thing vs. Energy 12-16-24

Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23

Fed Funds – Inflation Differentials: Strange History 7-1-23

Fed Funds, CPI, and the Stairway to Where? 10-20-22

Automotive Inflation: More than Meets the Eye10-17-22

PCE August 2025: Very Slow Fuse

Glenn Reynolds, CFA — Fri, 26 Sep 2025 23:17:53 GMT

The latest national security threat will bring more tariffs and pricing pressure.

The PCE inflation lines show slow and steady pricing pressure in Goods (Durables and Nondurables) and very stubborn sideways Services inflation. In Goods, we see multi-month sequential increases and some new recent 2025 highs as evidence of inflation pressures.
PCE price indexes YoY in August 2025 saw headline PCE at 2.7% (up from 2.6% in July) and Core PCE at +2.9% (flat to July). Goods PCE was +0.9% YoY at a YTD high. Durables was also at a YTD high and Nondurables at a post-Feb high. For the Aug 2025 price indexes, the Food line hit 2.2% YoY, which is also a YTD high.
Services PCE remains mired in the mid 3% range with the Aug 2025 level of 3.6% only exceeded in 2025 by February’s 3.8%. The range in 2025 for Services has been 3.5% on the low side to a single month of 3.8%. We see 4 months at 3.6% including January. As a reminder, Services consumption is almost double the Goods line in dollar terms as detailed in the PCE report. The fact that Services inflation is not moving much from the mid 3% area is an issue in a services-heavy economy.
The balance of personal income vs. outlays still shows consumer resilience with the payroll numbers serving as a cautious leading indicator on what may unfold in the fall if tariff-cost-mitigation actions start to weigh on payrolls, headcount planning, and capex reassessment on earnings weakness.
We face more tariff risk coming on with earlier follow-through lags (effective dates, working capital cycles etc.) including some new announcements (actual or teased) at the end of this week on branded pharma (100%) commercial vehicles (25%), and upholstered furniture (30%) and kitchen cabinet doors (50%) among others. The National Security threat seems to be a bit of reach. It’s unclear which category will fall under Section 232 and where the SCOTUS IEEPA appeal fits into the picture.

When we consider the level of tightening that could guard the system against a return to the stagflation of 1980-1982 or 1973-1975, the relationship of fed funds to PCE (or CPI) is critical in terms of the Fed mission. So, given the fact that Trump wants to cut fed funds by 300 bps (give or take 25 bps with the recent cut), the above chart does tell a story.

The “fed funds minus Core PCE” differential since 1973 provides a read on “real fed funds” and to what extent the Fed is engaged in “real” tightening as opposed to the “closet accommodation” that we saw in much of 2H22 when tightening was moving into higher gear but badly lagging inflation. Trump is calling for meaningfully negative real fed funds.

The long-term differential is +1.5%, and the differential now is +1.2%. That leaves room for easing, but the final judgement on actions comes down to how you see the tariff threats, the supply vs. demand side of the equation for goods, payroll economics and inflation expectations, and what that might mean for stagflation risk.

A glance back at the stagflation years of periods such as 1973 or 1981 and the various
“prevent defense” moves of the 1980s remind us how aggressive the Fed felt it needed to be. The idea that Trump would put in a Fed head with negligible experience and a few short stays at a handful of organizations (including one right wing activist group) is similar to what he has planned for the BLS. The stakes for the Fed are dramatically higher than for the BLS, which is bad enough (see Happiness is Doing Your Own Report Card 8-1-25).

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (below the current 2.7%) and the 2.4% core PCE median (vs. current 2.9%). That is dramatically better than where we came from in 2022 but still well above the 2.0% target.

The August 2025 PCE numbers are at reasonable levels in long-term context, but they just moved in the wrong direction again at a time when the FOMC is in a state of political turmoil and Fed leaders are under attack. The September SEP report and dot plot kept the PCE inflation forecast for 2025 unchanged from June at 3.0% headline and 3.1% core.

The next set of Fed moves in October and December come at a time when Trump attacks on macro statistics and independent agencies is nothing short of alarming. The policy is now to attack the data when it is not supportive.

That rhetoric and actions in 2025 have so far been right out of the 1984 handbook but also in clear print in Project 2025, where the use of the term “like-minded” was a troubling euphemism that appeared to advocate consolidation, downsizing and purging for maximum White House control. It is not about increasing budgets, investing in tech, and maximizing the quality of data. It is about “like-minded” leaders controlling information. We have looked at those issues in separate commentaries.

The above chart frames the long-term differential history between PCE and Core PCE since 1972. The long-term differential is zero and we currently stand at -0.2%. The volatility around that compressed long-term median ties into the energy wildcard with some food distortions also back in the 1970s. We look at some of the CPI energy and food inflation moves in separate commentaries (see Inflation: The Grocery Price Thing vs. Energy 12-16-24, Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23).

The above chart looks at a shorter timeline from 1997 to offer a better visual scale separate from the wild 1970s and 1980s. The recent days after Powell’s Jackson Hole speech restarted the debate in financial and economic circles around whether the target should be 2.5% or 3.0% or in some range. The above chart offers a reminder of how hard it is to get to 2.0% or below for headline PCE or Core PCE. The price chart covering the timeline from the inflationary/stagflationary periods of 1973 to 1982 hammer that home as well.

The “1997 to 2025” period shows a rare stretch at or below the 2.0% PCE line and Core PCE median. It took a lot to go wrong in that time horizon to cross that 2.0% threshold. The events along the way included tech bubbles bursting in 2000-2001, oil crashes in the late 1990s and the late 2014 to early 2016 period, and a systemic bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic was a new one for the modern capital markets.

It is interesting that the topic of the Feb 2022 invasion of Ukraine and ensuing oil and gas spike never seem to find a way into the Trump and MAGA rhetoric on inflation in 2022. That was a major factor in inflation, but the economic reality did not serve the domestic political priorities. The Biden policies and stimulus definitely had a major inflationary impact on pricing and supply-demand imbalances after COVID. That is also the case with the Russian invasion of Ukraine. Energy has been in deflation mode for most of 2025, and that has helped dampen the inflation headline numbers.

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income. We like to include this and the following chart just given the heavy mix of disinformation and politically axed story lines.

As a reminder, the COVID vaccine was announced in early Nov 2020 just ahead of two stimulus actions. That was soon to be a factor in PCE patterns and lag effects. The quarterly GDP numbers in 2021 on the post-COVID bounce were numbers generally not seen since the Reagan and Clinton years (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. So far, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. That has mitigated the damage but that de facto submission could come back to haunt some major trade partners if others run for office with a “get tough” election pitch.

Jacking up aluminum, steel, copper on the materials side and seeking even more tariffs on lumber is not a great idea for keeping prices and costs contained. Auto tariffs in Section 232 are extreme even after the array of “deals” and could go higher if the USMCA breaks down in 2026. We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. This past week brough commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture (making the world safe for couch potatos.)

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure numbers across the years from 2019 through Aug 2025. It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE. We rolled in waves of revisions in this month’s updates.

One exercise to do from time to time is to look at Table 1 in the monthly “PCE release” for the granular dollar amount on each line. The line items can sometimes show some volatility. We like to look for gaps between DPI and PCE and moves in Personal Savings.

Any reader of Table 1 can simply tick off which lines might come under pressure in coming months. Examples include expense lines such as Medicaid (post tax bill) or durable goods that face tariffs.

The above chart updates the savings rate history with the latest number ticking down MoM to 4.6% from a revised 4.8% and after a 2025 peak in April of 5.7% (as revised). We have looked at the savings rate dynamics in earlier commentaries (see Savings Rates: Context Across the Cycles 10-27-23). Savings rates peak in times of worry (occasionally panic) as evident in the chart above.

As we head into months of debate around tariff effects, it is important to get below the headline numbers and dig into the product line trends to gauge sequential pressures on purchasing power and consumer side effects.

2Q25 GDP Final Estimate: Big Upward Revision 9-25-25

New Homes Sales Aug 2025: Surprise Bounce, Revisions Ahead? 9-25-25

Credit Markets: IG Spreads Back in the Clinton Zone 9-22-25

The Curve: FOMC Takes the Slow Road 9-21-25

Market Commentary: Asset Returns 9-21-25

Mini Market Lookback: Easy Street 9-20-25

FOMC: Curve Scenarios Take Wing, Steepen for Now 9-17-25

Home Starts August 2025: Bad News for Starts 9-17-25

Industrial Production Aug 2025: Capacity Utilization 9-16-25

Retail Sales Aug 2025: Resilience with Fraying Edges 9-16-25

Credit Markets: Quality Spread Compression Continues 9-14-25

The Curve: FOMC Balancing Act 9-14-25

Footnotes & Flashbacks: Asset Returns 9-14-25

Mini Market Lookback: Ugly Week in America, Mild in Markets 9-13-25

CPI August 2025: Slow Burn or Fleeting Adjustment? 9-11-25

Mini Market Lookback: Job Trends Worst Since COVID 9-6-25

JOLTS July 2025: Job Market Softening, Not Retrenching 9-3-25

Hertz Update: Viable Balance Sheet a Long Way Off 9-3-25

Mini Market Lookback: Tariffs Back on Front Burner 8-30-25

2Q25 GDP: Second Estimate, Updated Distortion Lines 8-28-25

FOMC: Curve Scenarios Take Wing, Steepen for Now

Glenn Reynolds, CFA — Wed, 17 Sep 2025 21:24:12 GMT

Why can’t we all just get along?!

The -25 bps cut was in line with the oddsmakers, but the lack of broader support for steeper cuts through the end of 2025 show how the tariff and inflation worries are still there for numerous players in the Gang of 19 (and subset of 12). The same is true on labor.
The clear signal at the median was for more cuts, which initially got the equity markets excited before a fade. The 10Y UST actually rose, so the bear steepener flashbacks, after the Sept 2024 easing and 4Q24 series that totaled -100 bps, are still there (see chart below).
The new guy on the block (Stephen Miran), who is on leave from the White House and seen as a Trump proxy vote, wanted a cut of -50 bps. The institutional players seemed inclined to highlight Fed independence and prudence and push back at the recurring Trump demand for -300 bps. We assume a few were inclined to cut -50 bps but also wanted to show unity and support for the institution.
We saw 7 of the 19 calling for no more action in 2025 with 9 “dots” at 2 more cuts and 2 at 1 more cut. The identity of the outlier seeking 5 more cuts in 2025 is not much of a mystery. We see 5 dots with 2% handles for fed funds in 2026 with all 19 below 4%.

In the above chart, we include the ride from the Oct 2023 peak on the way down to the post-FOMC-easing lows of Sept 2024. That steepener risk is alive and well again given the constructive backdrop of growth (positive is worth something) and lingering threats of job losses running alongside tariff effects on goods pricing and corporate expenses (and the tariff cost mitigation strategies that come with that).

In the Summary of Economic Projections (SEP), we see the updates on medians and the changes from the last meeting. The last SEP report in June saw some negative revisions with this SEP more muted in the number and direction of the changes (see FOMC Day: PCE Outlook Negative, GDP Expectations Grim 6-18-25).

Below we frame a few of the more interesting economic projections:

PCE inflation: The new estimate for 2025 is unchanged after the increase in the last go-around. The June estimate was 3.0% and that stayed flat at 3.0%. That June 2025 SEP median was an increase from 2.7% in March and from 2.5% in Dec 2024. The inflation threat appears to be coming off the peak as a fear factor with median 2026 PCE inflation ticking lower to 2.6% with Core PCE for 2025 at 3.1% (flat to June) moving to 2.6% in 2026 (that was 2.4% for 2026 in the June 2025 numbers).

Unemployment: The unemployment rate median forecast remains at +4.5%, up modestly from current levels. The 2026 estimate has a median of 4.4%. That is a low rate in long term historical context.

GDP growth: The 2025 GDP estimate bumped up to +1.6% from 1.4% in June. We see sub-2% GDP for each year out to 2028 with the 1.8% GDP for 2026 an uptick from 1.6% in the June SEP. Sub-2% GDP is not bragging material.

Fed funds rate: The median fed funds for 2025 was notched down to 3.6%, down from +3.9% in June. The 2026 median is down to 3.4% from the 3.6% in June.

We watched the Powell press conference, and given the scrutiny he has been getting of late (including Jackson Hole), there was not much new with the most interesting dialogue about the change in the labor market. The theme around the likely effect of a one-time event of higher prices ahead was consistent as was the caveat that such action could give rise to more inflation effects on the wage – price links. That is the classic “short but tall” forecast one often hears.

The topic of what tariff pass-through effects look like was another routine topic. That is a radical departure from the Team Trump view, which is that Trump collected hundreds of billions from selling countries in Trump 1.0 (patently false since he collected zero). Trump has been reiterating that tariffs are bringing in “trillions.” (You should have seen the fish that got away!)

In the next jobs number, it will be important to see if bad news hits the payroll trifecta for another month. We get the final 2Q25 GDP numbers and another PCE print next week along with more housing releases. The return to the data grind remains as the market will get the SCOTUS IEEPA decision by the next SEP report.

Industrial Production Aug 2025: Capacity Utilization 9-16-25

Retail Sales Aug 2025: Resilience with Fraying Edges 9-16-25

Credit Markets: Quality Spread Compression Continues 9-14-25

The Curve: FOMC Balancing Act 9-14-25

Footnotes & Flashbacks: Asset Returns 9-14-25

Mini Market Lookback: Ugly Week in America, Mild in Markets 9-13-25

CPI August 2025: Slow Burn or Fleeting Adjustment? 9-11-25

Mini Market Lookback: Job Trends Worst Since COVID 9-6-25

JOLTS July 2025: Job Market Softening, Not Retrenching 9-3-25

Hertz Update: Viable Balance Sheet a Long Way Off 9-3-25

Mini Market Lookback: Tariffs Back on Front Burner 8-30-25

2Q25 GDP: Second Estimate, Updated Distortion Lines 8-28-25

CPI August 2025: Slow Burn or Fleeting Adjustment?

Glenn Reynolds, CFA — Thu, 11 Sep 2025 16:00:27 GMT

Running a special on coffee, beef and apples.

The CPI debate will remain hot with jobs getting worse and CPI numbers (2.9% headline, 3.1% core) manageable at the aggregate levels. CPI still shows a lot of MoM sequential increases that flag inflation in key lines such as food, apparel, used and new vehicles, electricity, and piped gas while shelter also took a fresh turn in the wrong direction. The “All items” CPI ticked up on a MoM basis from +0.2% to +0.4% with the same for “All items less shelter.”
The question around tariffs will stay hot as the market seeks to sort out how tariff costs flow into price levels and purchasing power and how higher expenses for buyers along the supplier chains play out in both manufacturing and services. It will also be important to monitor strategic moves in the various goods ecosystems in supplier chains (cost mitigation, payroll, capex, reshoring, relocation, expansion plans, etc.).
The PPI this week marked somewhat of a reversal from last month after July posted some notably adverse sequential numbers across numerous lines items. You could see the mounting pressure in select MoM trends into July from springtime in both PPI and CPI in July, but the shift in this month’s PPI thickens the plot (see PPI Aug 2025: For my next trick… 9-10-25, Producer Price Index: A Snapshot of the Moving Parts 8-14-25).
With IEEPA facing a legal showdown in coming weeks, numerous Section 232 actions (e.g. pharma, semis, lumber, furniture) are ahead along with a need to finalize critical deals still in process (Canada, Mexico, China), and clarify some major “deals” in need a lot of more detail infill and clear interpretations of intent (the EU, Japan, and South Korea.).
The labor market pressures that are very much in evidence at this point got another data point with a weekly claims number well above consensus as CPI was released, so the FOMC ammo for a more aggressive easing is on the screen. That comes even as the market still faces a longer timeline lag on how these trade policies flow into cyclical risks via the consumer and corporate effects (see The Curve: Risk Tradeoff - Tariffs vs. UST Supply 9-1-25).

The above chart is our usual update of headline CPI across the cycles plotted against fed funds. Those of us who came of working age back in the 1970s stagflation years fully appreciate the caution of the FOMC in being worried about tariff effects and inflation and GDP growth. Their desire to come to grips with the flow-through effect of tariffs is rational and not partisan. Stagflation is the worst enemy and that risk is not gone.

The recent weakness in payrolls heightens the focus on the dual mandate (see Mini Market Lookback: Job Trends Worst Since COVID 9-6-25, Payrolls Aug 2025: Into the Weeds 9-5-25,Employment August 2025: Payroll Flight 9-5-25). Today posted up a weekly claims number of 263K (for week ended 9-6-25) that was well above consensus and the highest since late 2021.

The simple statement is the current headline CPI is 2 ticks below the long-term median from 1973 while the current core CPI is 2 ticks above the long-term median. With Trump’s usual display of technical virtuosity and grasp of the numbers, he frames this market as “we have no inflation.”

As someone who arrived to a job in NYC in June 1980 with a 22% Misery Index, these current numbers are high in the context of the new millennium but seem quite low vs. inflation pain cycles of decades gone by. Those 1973 to 1982 bouts of volatility are just what the FOMC is determined to avoid. Trump is about immediate gratification (300 bps cut now!).

The above chart highlights some more specialized CPI indexes (the “CPI ex” lines), and these still look respectable on an ex-shelter basis at +2.5%. That said, we see the “all items ex shelter” line at a recent high after ending 2024 at +1.9% and 2023 at 1.9% June +0.7%) with 2022 a case study in ugly.

Goods (Durables and Nondurables) are low, but the Durables CPI had stepped up since the spring at back-to-back +0.4% months in July and August. Durables had exited its deflation zone on the back of tariff pressures. Nondurables MoM swung from -0.2% in July to +0.6% in August.

Services remains a challenge across a few variations with shelter or ex-shelter but has stabilized in the MoM trend line with 3 months in a row at +0.3%. That is good news given the size of the services sector in the economy.

Last month we framed some of the auto tariff issues, and that is one major multiplier effects industry that bears close watching in coming months (see CPI July 2025: Slow Erosion of Purchasing Power 8-12-25). For autos, used vehicles posted +1.0% on the month (vs. negative in May and June and +0.5% in July). New vehicles also ticked higher to +0.3% MoM from +0.0% in July, and -0.3% in June and May. The OEMs remain very cautious in their strategy by eating some costs and managing the retail customer comfort zone while supporting dealer networks.

The full effects in automotive will play out over the course of late 2025 and into 2026 as the OEMs look to their supplier chains and internal cost-mitigation strategies to make the requisite adjustments. The auto trade rags are packed full of opinions and theories on how it will all play out. Major factors are a final set of terms for Mexico and Canada.

The Big 5 is where we see a lot of action with Food overall notably high on a MoM basis from 0.0% to +0.5% at +3.2% YoY. The crucial Food at Home line ran from -0.1% to +0.6%, but the interesting part is the tariff impacts on various food groups. We break out a few samples below:

Meats: Meats are up +7.3% YoY and August MoM up +1.8% again from +1.0% in July. The subcategory of “Beef and Veal” is +13.9% YoY and sharply higher at +2.7% MoM in August after +1.5% MoM for July.
Coffee: Coffee has been soaring in stores of late. Some bags not long ago in a nearby store that were priced around $10 are now over $20. In the CPI lines, Coffee is +20.9% YoY (21.7% for roasted coffee) and +3.6% MoM in August after +2.3% in July and +2.2% in June.
Bacon, Lettuce and Tomatoes: Your “BLT” is rising with bacon CPI (and related products such as sausage) at +5.4% YoY and +1.2% MoM vs. -0.5% in July. Lettuce is only +3.8% YoY but August saw +3.5% for MoM after +4.0% in in July. Tomatoes are at -1.2% YoY but are now making a surge at +4.5% MoM in August after +3.3% in July.
Apples and Bananas: Apples are at +9.6% YoY with August +3.5% MoM in August. Bananas posted +6.6% YoY with August +2.1% MoM vs. +0.4% in July and -0.9% in June.

Obviously, there are lot of line items low, flat and even deflating, but it is very hard to see how consumers ride the aisles and don’t feel it at the cash register.

The above chart highlights some line items near and dear to households. We see some line items such as Apparel move sharply higher MoM (+0.5% August vs. +.01% July), but those apparel numbers from here will turn heavily on the IEEPA case given how that was used in slamming some of the small Asian “labor arb” countries in the reciprocal tariff program. Interestingly, Footwear tailed off sharply on a MoM basis after a big move in July. Recreation Services also tailed off MoM in August.

See other Inflation Related:

Producer Price Index: A Snapshot of the Moving Parts 8-14-25

CPI July 2025: Slow Erosion of Purchasing Power 8-12-25

PCE June 2025: Prices, Income, and Outlays 7-31-25

Employment Cost Index 2Q25: Labor in Quiet Mode 7-31-25

CPI June 2025: Slow Flowthrough but Starting 7-15-25

PCE May 2025: Personal Income and Outlays 6-27-25

CPI May 2025: The Slow Tariff Policy Grind 6-11-25

Employment Cost Index 1Q25: Labor is Not the Main Worry 5-1-25

Inflation: The Grocery Price Thing vs. Energy 12-16-24

Inflation Timelines: Cyclical Histories, Key CPI Buckets11-20-23

Fed Funds – Inflation Differentials: Strange History 7-1-23

Fed Funds, CPI, and the Stairway to Where? 10-20-22

Automotive Inflation: More than Meets the Eye10-17-22

The Curve: The Road to Easing has been Long. 9-8-25

Footnotes and Flashbacks: Asset Returns 9-6-25

Mini Market Lookback: Job Trends Worst Since COVID 9-6-25

JOLTS July 2025: Job Market Softening, Not Retrenching 9-3-25

The Curve: Risk Tradeoff - Tariffs vs. UST Supply 9-1-25

Mini Market Lookback: Tariffs Back on Front Burner 8-30-25

2Q25 GDP: Second Estimate, Updated Distortion Lines 8-28-25

Durable Goods July 2025: Signs of Underlying Stability 8-26-25

The Curve: Powell’s Relief Pitch 8-24-25

Mini Market Lookback: The Popeye Powell Effect 8-23-25

Mini Market Lookback: Rising Inflation, Steady Low Growth? 8-16-25

Industrial Production July 2025: Capacity Utilization 8-15-25

Retail Sales Jul25: Cautious Optimism in the Aisles 8-15-25

Mini Market Lookback: Ghosts of Economics Past 8-9-25

Macro Menu: There is More Than “Recession” to Consider 8-5-25

Mini Market Lookback: Welcome To the New World of Data 8-2-25

Happiness is Doing Your Own Report Card 8-1-25

PPI Aug 2025: For my next trick…

Glenn Reynolds, CFA — Wed, 10 Sep 2025 22:18:03 GMT

The sequential MoM PPI action in August just upped the ante for tomorrow’s CPI as the last inflation metric before next week’s FOMC meeting (see Producer Price Index: A Snapshot of the Moving Parts 8-14-25). The news was bullish for the “more easing” story with some obvious asterisks around the IEEPA SCOTUS decision.
The FOMC handicapping is leaning toward more easing than the earlier forecast with the FedWatch estimates calling for 25 bps in Sept, Oct, and Dec 2025.
The slow turning of the wheel on tariff costs, mitigation strategies, margin impacts, and handicapping consumer demand in a slowing economy will keep on turning subject to the SCOTUS decision on IEEPA, the pace timing, and magnitude of pending Section 232 decisions.
To the extent the PPI is a useful leading indicator, there are a lot of evolving risk factors on what will weigh on corporate sector strategies and asset allocation decisions. There are also plenty of supply and demand factors still to be digested.

The PPI trend line each month will keep doing its thing, and there are so many line items it gets more than a little difficult to gauge the inflation effects and potential for finished goods price trends. The questions around how tariff cost pressures (paid by the buyer) remain as to how tariffs will generate responses along the supplier to OEM to customer chain (eat the cost, cut other costs, raise prices, change product mix plans, etc.). The timeline is set by the markets and not by “axed” policy advocates or partisan disinformation.

The above table is easy enough to scan for MoM deltas and the mix of “up vs. down.” This month shows a much different pattern than the July PPI trends. The final demand lines show a material reversal. On the intermediate side, materials and components stayed higher than the group in YoY trends as did private capital equipment, but the bulk remained low in YoY deltas.

Table 1 of the PPI release lends itself to an old fashioned vertical and horizontal scan process to look for YoY outliers and sequential moves. You don’t see much over 3% in the final demand YoY column. In intermediate processed goods, some lines such as “Materials for Manufacturing” (+26.7% weight) popped above 4% YoY (4.4%) while Materials for Durables hit +9.1%. One thing the PPI report does not lack is line items. It seems at times like a throwback to the old days of a Manhattan phone book.

The Curve: The Road to Easing has been Long. 9-8-25

Footnotes and Flashbacks: Asset Returns 9-6-25

Mini Market Lookback: Job Trends Worst Since COVID 9-6-25

JOLTS July 2025: Job Market Softening, Not Retrenching 9-3-25

The Curve: Risk Tradeoff - Tariffs vs. UST Supply 9-1-25

Mini Market Lookback: Tariffs Back on Front Burner 8-30-25