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The year over year core PCE price index was up 1.955% in May. If you round the data up, the Fed has finally reached its target for 2% inflation. This means it beat out expectations by about half of a basis point since the expectation was for 1.9%. It was higher than last month’s report of 1.81%. The month over month core PCE and headline PCE price indexes showed 0.2% growth which met estimates. Finally, the headline PCE price index was up 2.3% because of higher oil prices.

The core PCE is one of the lowest measures of inflation as the core PPI is at 2.4% and the core CPI is at 2.2%. The core PCE being at or above 2% is so rare that it has only occurred 4 months in this 9 year expansion. The hope for those who want inflation to keep increasing is that the rate will stay high, unlike the bouts of inflation in early 2012 and mid to late 2016 because the labor market is tighter and the supply chain is overheated as evidenced by the regional Fed manufacturing surveys. The bears on inflation will point out that the year over year comparisons in core PCE were helped by easy year over year comparisons just like the other short-term increases in previous years. As you can see from the Macrobond chart[1] below, the inflation rate in May 2017 fell to 1.48%. The comparisons will stay easy for the next 3 months until the core PCE growth in 2017 bottoms at 1.3% in August. If you look at a 2 year stacked growth rate, the April report showed 3.39% growth and the May report showed 3.43% growth, not much of a...

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