News analysis
The US personal consumption expenditure (PCE) based inflation released last week eased a bit from 6.6 percent in March to 6.3 percent in April. Thanks to the higher base in April 2021 than March 2021, larger denominator makes year-over-year growth lower. Analysts claim that inflation had peaked. But this number is subject to base effect and the influence of noncore volatile items, i.e. food and energy. Examining the core PCE month-over-month inflation which excludes volatile items and without base effect, the April number is essentially the same as the March one, standing at 0.3 percent.
Annualising this gives a year-over-year inflation of 3 to 4 percent. This looks low but may only be “transitory” in Fed’s term. Like stock prices, goods prices do not rise along a strictly linear path, occasional low growth cannot confirm a peak. In fact, the core PCE month-over-month inflation is still on the past two years’ linear uptrend. As we have argued previously, the source of recent global high inflation (ex-China and Hong Kong) is mainly due to ridiculous monetary easing. So long as such excess is not largely withdrawn, inflation will not be low….
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