June 2024 year-over-year PCE comes in nine basis points lower than prior month

As a reminder, Bancreek publishes two visualizations that can help you explore PCE in granular detail. Both of these visualizations have now been updated through June and are embedded below:

This post hopefully will further assist in your analysis of the moving parts underlying this month’s PCE print. Its goal is not to provide a comprehensive analysis of the more than 180 items we track (that’s what the visualizations are for), but rather just to point to the most meaningful changes from one month to the next.

To perform this analysis, we track a measure we call “inflation impact,” which we calculate by multiplying each item’s YoY inflation by its weight in the prior year period. You can think of this as “weighted inflation” as opposed to the “unweighted inflation” that is more commonly reported by the media. Each month we take the weighted inflation of each item we track in PCE and then sum them up to overall PCE. Then we compare these weighted inflation numbers from one month to the next to see what drove the sequential increase or decrease. In this way, we can precisely identify the most significant drivers in the change in YoY PCE from one month to the next.  

Gasoline responsible for (more than) all favorability in year-over-year PCE versus prior month

Again, in June 2024, overall YoY PCE declined by nine basis points from May 2024 PCE. When we look at the change in item-level inflation impact from May to June, we see that the largest favorable move was in Gasoline, which shaved 11 basis points off YoY PCE alone. As shown in the chart below, the other items that were most favorable were Final consumption expenditures of nonprofit institutions serving households (3.6 basis points favorable), Electricity (2.3 basis points favorable), Physician services (2.3 basis points favorable), Net motor vehicle and other transportation insurance (2.2 bps favorable), and Imputed rental of owner-occupied nonfarm housing (2.0 bps favorable). As shown below, there were another six items that were favorable by one basis point or more this month.

Source: Bancreek Capital Advisors, LLC

Unfavorable items in June 2024 led by Legal services

While gasoline was the true standout this month, its favorability was partly offset by a collection of unfavorable items. The below figure shows the 12 items whose inflation impact increased by one basis point or more in the month.

Source: Bancreek Capital Advisors, LLC

Legal services measurement has been uncharacteristically volatile

It's worth calling out in our view that the Legal services item has been uncharacteristically volatile since COVID. Take a look at the below chart, which shows frenetic swings back and forth in this measurement, especially as of late. In other words, it is probably not worth getting worked up about the impact of this measurement until it settles.

Source: Bancreek Capital Advisors, LLC

A relatively quiet inflation print

In our view, there may have been great expectations going into today's PCE print, especially given we are just days away from July's FOMC rate decision. This print was set up perfectly for fireworks. But instead of fireworks, we got one of those sparklers that's safe enough to give to your kid to hold - a nice decline in gasoline with small moves in everything else offsetting.

But this was a good reminder that PCE doesn't work the way that CPI works. As we (and many others) have written, CPI is intensely concentrated in housing and auto insurance, so small changes in these items will have a big impact. Conversely, PCE is a highly diffuse measure, with weights spread much more evenly across the board. To be sure, moderation in housing inflation will still put downward pressure on PCE, but due to far smaller housing weights, the impact should be much more muted going forward.