Consumers are increasingly asking: Is this a need or a want? Adiscernible gap between the rate of price increases for necessities and the one fordiscretionary purchases is putting the Federal Reserve’s tighteningpath at risk of veering off course.

Making matters more difficult, the Fed’s preferred inflationgauge does a pitiful job of capturing the quandary facing manyhouseholds that live paycheck to paycheck. The so-called core PCEis the central bank's go-to inflation metric. It is derived bynetting out the necessities of food and energy from personalconsumption expenditures. But the core PCE also minimizes theweight of rent and over-emphasizes health care due to Medicaid and Medicare’sinputs.

Classify the following items within the core PCE as necessitiesand then track them as an aggregate using what we can call theHousehold Budget Inflation Gauge. Included are food andnonalcoholic beverages, fuels, clothing, housing, utilities, healthcare, health insurance, homeowners’ insurance, auto insurance,higher education and the phone, utility and internet bills. As ofthe latest reading, these costs are rising at a 2 percent ratecompared with last year.

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