Stagflation

Two things to notice about today’s Personal Income and Outlays report:

1. The savings rate went up (that is, became less negative) for the first time this year. We should perhaps take this with a grain of salt, since this isn’t the first time that it has risen for the first time: the February and March reports were subsequently revised to show the savings rate falling deeper into negative territory. Nonetheless, given the recent decline in retail employment, I’m betting that this one sticks. For the third month in a row, real personal consumption has risen by only 0.2 percent.

2. The 12-month change in the market-based core consumption deflator reached the magical 2 percent number. According to some observers, this is the Fed’s favorite inflation indicator, and 2 percent is the top of the Fed’s comfort zone.