Core PCE 0.1% December and 1.5% YOY, Inflation Subdued. Savings 4.8% As Consumers Cautious.

Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were 0.1% in December and 2.1% year-over-year through December. Excluding volatile oil and food costs from the readings, “Core” PCE price index for December was 0.1% and 1.5% YOY through December. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these two items, and the Fed’s zone for reasonable inflation is 1-2% per year. At 1.5%, Core inflation is within their comfort zone, as confirmed by the FOMC’s statement last week that inflation is likely to be subdued for some time, and the fact that PCE inflation has been stable since summer 2009.

Personal income increased 0.4% percent in December, and wages were up 0.1% from last month. Households kept hoarding cash with Personal Savings Rate rising to 4.8%, which marks a four-month trend of savings in this range, bringing the 12 month average to 4.6%. In May, personal savings hit an all-time record high of 6.9%. Below are all key details from the Personal Income & Outlays report.