December inflation highlights in the PCE report:

  • Prior was 1.3% y/y (revised to +1.4%)
  • Core PCE 0.0% vs 0.1% m/m expected
  • Prior core PCE +0.1% m/m (revised to +0.2%)
  • PCE deflator 0.6% y/m vs 0.6% y/y expected
  • Prior PCE deflator 0.4% y/y
  • PCE deflator -0.1% vs 0.0% exp
  • Prior PCE deflator 0.0% m/m (prevised to +0.1%)

The inflation numbers are a touch lower but it's largely balanced out by upward revisions. It takes some serious mental gymnastics for the Fed to see inflation in all of this but they've managed to do it (and will continue to do so).

There isn't enough here to get the market's attention but the spending and income data is the driver.