U.S. Economic Brief || Inflation accelerates in February while real consumption declines

Inflation accelerates in February while real consumption declines

*Personal income increased 0.5% m/m in February, boosted by a 680k jump in payroll employment over the month and a rebound in average hours worked as the omicron wave of infections subsided (Chart 1). Rising personal income lifted disposable income 0.4% m/m, yet personal consumption increased by a modest 0.2% m/m following a significantly upwardly revised 2.7% m/m rise in January, an indication elevated prices are cutting into real purchasing power and beginning to restrain demand. The personal saving rate ticked up to 6.3% but remains significantly below its 2019 average, suggesting households are continuing to draw on savings to meet current spending needs and smooth consumption in the face of accelerating inflation. Real disposable income edged down 0.2% m/m, the seventh consecutive monthly decline.

*In real terms, consumption ticked down 0.4% m/m in February and has decelerated in the last six months as prices surged, rising 2.5% on a six-month annualized basis compared to a 4.7% gain in January. Notably, there are signs the mix of consumption between goods and services is beginning to rebalance back toward pre-pandemic patterns, a trend we expect to continue as the economy reopens (Chart 2). Real goods consumption declined 2.1% m/m while real consumption of services increased 0.6% m/m, underpinned by robust gains in real spending on food services and accommodation (2.4% m/m) and recreation services (1.9%). Surging energy and gasoline prices could weigh on consumption in the near term, particularly among low- and middle-income households. In nominal terms, household spending on gasoline and other energy goods spiked 6.5% m/m in February, representing a $27 billion annualized increase, accounting for a significant share of the rise in nominal spending in February.

*The headline and core PCE price indices increased 0.6% m/m and 0.4% m/m, respectively, lifting their yr/yr increases to 6.4% and 5.4% (Chart 3). Food and energy prices soared in February, rising 1.4% and 3.7% m/m, respectively, and have increased 8% and 25.7% yr/yr (Chart 4). Measures of headline inflation are likely to rise further in the near term, driven by the steep run-up in food and energy prices through March, and core inflation is likely to remain elevated, reflecting increased demand for services and the lagged impact of rising rent and home price appreciation.

*Durable goods prices were flat over the month, as motor vehicle and parts inflation moderated. Prices of new motor vehicles ticked up 0.3% m/m, but used auto and used light truck prices declined 2% and 0.9% m/m, respectively. Manheim’s Used Vehicle Value Index suggests used vehicle prices may have reached an inflection point, which will ease some headline inflation pressures but is likely to be offset by accelerating services inflation. Elevated shipping costs, rising industrial commodity prices, and ongoing labor and supply shortages should continue to exert upward pressure on goods prices.

Chart 1. Personal Income (SAAR, $ trillions)

Chart 2. Real Consumption – Goods vs. Services (SAAR, $ trillions)

Chart 3. PCE Price Index – Headline vs. Core (ex. Food & Energy)

Chart 4. PCE Price Index: Food vs. Energy (yr/yr, %)

Mickey Levy, mickey.levy@berenberg-us.com

Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com

© 2022 Berenberg Capital Markets, LLC, Member FINRA and SPIC

Remarks regarding foreign investors. The preparation of this document is subject to regulation by US law. The distribution of this document in other jurisdictions may be restricted by law, and persons, into whose possession this document comes, should inform themselves about, and observe, any such restrictions. United Kingdom This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers. Copyright BCM is a wholly owned subsidiary of Joh. Berenberg, Gossler & Co. KG (“Berenberg Bank”). BCM reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without the BCM’s prior written consent. Berenberg Bank may distribute this commentary on a third party basis to its customers.

Member FINRA & SIPC
This email and any files or attachments transmitted with it may contain confidential or privileged information and are intended solely for the use of the intended recipient. If you are not the intended recipient, please do not copy, retain, disclose or use any part of the message or its attachments. Please notify the sender immediately by return email and destroy or delete any copies. Dissemination or use of this information by anyone other than the intended recipient is unauthorized and may be illegal. Communications by email cannot be guaranteed to be secure or error-free. Emails and their attachments are subject to being intercepted, becoming corrupted, getting lost or delayed, or may contain viruses. Therefore, neither the sender nor Berenberg Capital Markets LLC (BCM) accepts any liability for any errors or omissions in the content of this message or problems in its transmission, including those arising as a result of its transmission over the internet.
BCM does not assume liability for the correctness and completeness of all information given and/or attachments contained herein. The provided information has not been checked by a third party, especially an independent auditing firm. BCM explicitly points to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. BCM does not assume responsibility to indicate such changes and/or to publish an updated document. Any document(s) or attachment(s) is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.
In light of upcoming regulatory changes, please be informed that BCM will continue to share information with you until unsubscribe@berenberg-us.com receives your termination/deletion request. For more information about the General Data Protection Regulation (GDPR) and our privacy policies please refer to https://www.berenberg-us.com/legal-notice. BCM reserves all the rights in this communication. No part of this communication or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without BCM’s prior written consent.
The information contained herein and sourced may have been adopted from various news sources, for example, Bloomberg, Reuters, Street Account and various other sources. BCM does not claim accuracy, completeness, timeliness, suitability, or otherwise regarding all the information on the securities, stock markets, or developments referred to within. On no account should the Content be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. BCM is not responsible for any recipient(s) use of this information. This Content is not a solicitation or an offer to buy or sell any of the securities contained herein. This information does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of clients. Clients should consider whether any advice or recommendation in this Content is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of securities which may be referred to in this Content and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain securities.