According to personal income and expenditure data published today; In February, income decreased by 7.1%, disposable income by 8% and personal consumption expenditures by 1%. The rate of increase in the core PCE price index was 0.1% on a monthly basis and 1.4% on an annual basis. The decrease in income and indirectly in spending in February occurred as the effect of temporary social assistance provided by the government was over. The factor that will accelerate the increase effect here will be the Biden fiscal stimulus package. It is still unknown how much of the unemployment benefits will go to the money cycle in the real economy (expenditure, naturally inflation) and how much of it will go to the financial markets (stocks, bitcoin, etc.).
The personal savings rate is at the level of 13.6% as of February. It was at the level of 19.8% in January. In the period of July - November 2020, it decreased from 18.4% to 12.5%. It is normal for individuals whose income has decreased during the pandemic and cannot return to work to spend from their savings during this period. When we compare January and February, which has the state aid effect and the latter has not, we again see such a dramatic effect on the savings rate. So a significant part of social benefits and unemployment benefits will go to replace the savings.
In all these circumstances, the data actually point to the picture the Fed wants to see. Inflation pressure has weakened, and when the benefit effect returns, there will be another heating. For the Fed to review financial conditions, inflation will need to increase not periodically, but over time and permanently.
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