BEA’s Latest Personal Income Data: The Bite of Inflation Persists

By at 29 March, 2024, 3:24 pm

by Raymond J. Keating

The U.S. Bureau of Economic Analysis issued its latest report on personal income, and it serves as another reminder that the pain of inflation persists.

It was noted that personal income grew by 0.3 percent in February. However, that was matched by PCE (personal consumption expenditures) inflation – which reportedly is the Fed’s favorite inflation gauge – registering at 0.3 percent. The result? No real gain in personal income.

In fact, real disposable personal income – i.e., personal income less personal current taxes and adjusted for inflation – shrank by 0.1 percent in February. For good measure, on a per capita basis, real disposable income has now declined for two consecutive months. As I have argued before, per capita real disposable income is the most important measure of income as it shows the amount of dollars individuals have for investing, saving and consuming.

Finally, the consumer spent big in February, with personal consumption expenditures increasing by 0.8 percent, and 0.4 percent in real terms. How long that will last, though, is dubious given the persistence of inflation, as well as assorted other risks and uncertainties looming over the economy.

It pays to take a moment to think about exactly what would make sense from a policy perspective in terms of getting the economy and incomes growing robustly while also reining inflation in further.

Keeping in mind the basic idea that inflation ultimately is about too much money chasing too few goods, the basic framework is to have monetary policy focused on price stability by, at this juncture, sopping up the unprecedented growth in the monetary base that has occurred over the past near-16 years, while the White House and Congress must shift to a pro-growth agenda.

That agenda needs to consist of substantive tax relief, deregulation, free trade, and reining in government spending (the exact oppositive of what’s occurring). This is the agenda that will provide a foundation upon which entrepreneurship, private investment, innovation and growth can flourish.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.


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