Economists have once again underestimated a pickup in inflation. The core (excluding food and energy) PCE Deflator is pushing toward 2%. The chart shows survey vs. the actual numbers.
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| PCE Deflator Core (YOY) |
The Fed pays attention to this number more than the headline PCE Deflator, which was also underestimated today (2.4% vs. 2.3% estimated). And this is by far the preferred inflation gauge to the CPI because it focuses on what the consumer actually buys vs. a set basket tracked by the CPI. With fuel prices elevated and driving season not yet here, we may see further increases in inflation.
Yes, one can argue that inflation is still subdued, but it is certainly not consistent with the 5-year treasury yielding 0.92% and the 10-year yielding 2%.
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