Pre-War Inflation Was Heating Up | S3 E137 | 04-09-26

Was inflation already becoming a bigger problem before the war with Iran? In today’s Markets with Megan, Megan Horneman breaks down the latest personal income, spending, and core PCE inflation data to show what the economy looked like before the latest geopolitical shock hit energy markets.

The takeaway: inflation was already proving sticky, and consumers were already feeling the squeeze.

In this episode, Megan covers:

Why real personal spending has been muted for months
What falling income and a lower savings rate may signal for the consumer
Why core PCE remains well above the Fed’s 2% target
How higher auto and transportation costs could feed into future inflation data
Why March and April data may show even more pressure from tariffs and commodities
What this could mean for second-quarter growth and the consumer outlook

Even before the full effects of rising oil and broader war-related disruptions show up in the data, the economy was already showing signs of strain.

Subscribe for more market updates from Megan Horneman and the Verdence team.

📺 Watch more here: https://marketswithmegan.fm

#MarketsWithMegan #Inflation #PCE #CorePCE #ConsumerSpending #PersonalIncome #FederalReserve #Economy #MarketUpdate #StockMarket #OilPrices #Geopolitics #Tariffs #Investing #MarketOutlook

https://youtu.be/x9WHXgAUwPI

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Transcript

Why Prewar Data Still Matters

Megan Horneman 0:00

We're still getting data that occurred before the war with Iran, but this is important to give us an idea of how stable the economy was, what kind of an inflation environment were we in before we entered the war. It's Thursday, April the 9th, and this is Markets with Megan. If you like this podcast, you can subscribe, hit the alarm bell, share with your friends, family, or colleagues. But we're here today to discuss some of the economic data that we've received this morning. And while the markets are a little bit weaker today, I'm not so sure that has to do with this data. We are getting, you know, we had that big rally yesterday, and you're seeing some confusion around the ceasefire, you're seeing some violations around the ceasefire, and you're seeing the Strait of Hormuz really not open yet. So investors are taking a breather after that substantial rally that we saw yesterday. But it's very important to look at the data that we got today. So when we look at we got personal spending and income, um, over the past six months, we've seen real personal spending. So this takes it take it takes into consideration inflation. It um has only grown about 0.2%. It hasn't been able to grow above 0.2%. We've had months at 0.1, we've had months that were flat, but over the past six months, it's been very muted. So inflation is taking on some of that spending away from consumers. Because we saw in the month of February that incomes declined, but spending was higher, that we saw the personal savings rate drop to 4%. It's well below the past 20-year average of 6%. And remember, this is data for February, and this is before the rise that we've seen in oil. Now, the Fed's preferred inflation indicator that we got also with this report, it's called the core PCE index. That rose four tenths. It came in as expected, but on a year-over-year basis, core inflation is rising 3%. So well above the Fed's 2% target. When we looked at some of the spending numbers, we did see an increase in autos. That's probably going to filter into CPI data that we see tomorrow. We also started to see some of the rise in pricing from oil in transportation services. But within the Fed's preferred inflation indicator, because we don't have the oil in there yet, we did see some of that increase related to tariffs. So now when we start getting March and April's data, this is not only going to include tariff-related inflation, but also the big increase we've seen in commodities. So we do think that there is some concern about inflation in the coming months. And what this data has showed us is that inflation was already brewing before the war, and also that consumers were being squeezed by that inflation before the war. And as we said, we don't even have the data with all of the implications from the war in this, in these data reports that I've been giving you. So it does show that there might be some weakness here in the consumer in the second quarter when we start to get those GDP numbers. Now we'll be back tomorrow because we're rounding out the week with another inflation report that is very it tends to be very market moving, and that's the consumer price index. That's all we have for today. If you like this podcast, you're going to marketswithmegan.fm. Thank you.