Fake News Again! “Good” Inflation Print Completely Misses the Point

The mainstream media loves to promote the positive news during an election year while suppressing anything that contradicts that narrative. This is how they manipulate you every day – but only if you let them get away with it.

Here’s what they want to you focus on. Reportedly, the core Personal Consumption Expenditures (PCE) index, which people like to call the Federal Reserve’s preferred inflation gauge, slowed down in April. Mind you, this is a lagging indicator as it’s already June now.

To be more specific, core PCE increased 0.3% in March, followed by 0.2% in April. On a year-over-year basis, April’s core PCE increased 2.8%, the same as March’s increase.

Naturally, some people will jump on these data points and treat them as an all-clear signal for the U.S. economy. For example, Oxford Economics deputy chief U.S. economist Michael Pearce concluded that the easing of month-over-month core PCE increases “represents better news on inflation than we saw in the first quarter.”

That’s factually true, but it’s not the first conclusion that I would draw from all of this. For one thing, core PCE isn’t decreasing; it’s only increasing at a slower pace, and that’s just for one month. For the perma-optimists, there’s really nothing meaningful to be read into April’s core PCE print.

Courtesy: Yahoo Finance

Bear in mind, the inflation rate doesn’t go up in a straight line. Inflation can still be on an uptrend even if there’s a month in which consumer prices increase at a slower rate.

Besides, a one-time blip on the radar won’t be enough to convince the Federal Reserve to suddenly shift their interest-rate policy. As Nationwide chief economist Kathy Bostjancic explained, “Fed officials will need more than one month of better inflation readings to bolster their confidence enough to start to cut rates later this year.”

Furthermore, on a more fundamental level, there’s a major objection to the Fed’s so-called preferred inflation gauge. In particular, the core PCE index doesn’t include food and energy prices.

Food bills, gasoline costs, and electricity bills are a major part of real-life inflation for working middle-class Americans. They might not be a big deal for well-heeled Federal Reserve officials and various career politicians, but food and energy price inflation shouldn’t just be discounted from the equation.

They might think they’re fooling everybody, but they’re not. Risk-on assets, including high-valuation technology stocks, tumbled in the wake of April’s core PCE data release.

Courtesy: Yahoo Finance

The decline in the NASDAQ continued the previous day’s drop in technology stocks, with short-term traders seeking refuge in non-technology large-cap stocks. It’s a notable rotation, since the bull market of 2023 and 2024’s first half has relied heavily on a handful of technology stocks.

Soon enough, there could be a reckoning for high-risk stocks with overinflated valuations. New York Fed president John Williams recently said about interest-rate cuts, “I don’t feel any urgency.” Meanwhile, Fed Governor Chris Waller stated that he wants to see “several” months of data, meaning that April’s core PCE reading won’t be enough to change his stance on interest rates. 

Nevertheless, mega-cap tech stocks already priced in the assumption from earlier this year that the Federal Reserve would cut interest rates half a dozen times. Now, it’s debatable whether the Fed will reduce interest rates this year at all. So, don’t read too much into the seemingly “good” April inflation print, which certainly doesn’t reflect the real-life experiences of 99.99% of Americans.