U.S. income and spending likely rose in December, inflation to have remained modest

U.S. income and spending are expected to have jumped in December; however, inflation is likely to have stayed modest. In December private payrolls rose 0.12 percent, whereas average hourly earnings rose 0.4 percent in the period that might have resulted in a 0.5 percent rise in private wages and salaries. This in turn is likely to have underpinned a rise in personal income of around 0.4 percent, although it would not be a surprise to see a rise of 0.5 percent.

In the meantime, nominal spending is expected to have risen 0.5 percent in December, said Societe Generale in a research report. Even if retail sales control group rose just 0.2 percent in the month, spending on autos increased around 3 percent that probably boosted the headline spending figure.

Given that the industrial production report showed a 6.6% rise in utilities production, suggesting greater demand for utilities’ services, outlays for services may also have posted a decent rise. Even if income and spending gains were possibly strong, the inflation data might have been weaker. The headline PCE deflator is likely to have recorded a rise of 0.13 percent in December that might push the year-on-year rate up to 1.6 percent, noted Societe Generale.

“Given our expectation for the deflator, we believe that real personal spending likely increased by 0.3 percent last month (although we could easily see it round up to 0.4 percent). Meanwhile, the core PCE deflator could have edged up by 0.1 percent (0.084 percent un-rounded), which likely produced a 1.7 percent yoy rate”, added Societe Generale.