The Federal Reserve’s preferred inflation gauge, core PCE Price Index, which omits food and energy, came in lower than consensus rising 0.1% (consensus 0.4%) in August. Core-CPE Price Index decelerated to 3.9% yr/yr from an upwardly revised 4.3% (from 4.2%) in July. The key takeaway core price growth was a cooler than expected, though the overall report showed price pressures remain and the surge in energy prices to factor in coming months.
Prices as measured by the PCE index over the past year was up 0.4% (consensus 0.4%) in August. On a year-over-year basis, the headline PCE Price Index was up 3.5% versus an upwardly revised 3.4% in July (from 3.3%).
Personal Income increased 0.4% month-over-month in August (consensus 0.5%) after increasing 0.2% in July. Personal spending was up 0.4% month-over-month (consensus 0.5%) after increasing an upwardly revised 0.9% (from 0.8%) in July.
Federal Reserve Governor Chairman Powell has reminded us at the FOMC that the Fed’s key influence or measure for inflation is the core PCE index.
The PCE price index is closely watched since it is the preferred inflation measure of the Federal Reserve, which began raising interest rates for the first time since the pandemic began to tamp down rising prices. The Fed has traditionally tended to focus on the PCE price index because it gives a more complete picture of consumer prices, while the public and many investors tend to be more aware of the Labor Department’s CPI figure.
The market seems to go through phases of trading on the premise that the US is at or close to, peak inflation. The shock will come if better inflation news in coming months is not coming.
Highlights
Core PCE Index August 2023
- PCE Core Deflator (M/M) Aug: 0.1% (Est 0.2%; Prev 0.2%)
- US PCE Core Deflator (Y/Y) Aug: 3.9% (Est 3.9%; PrevR 4.3%)
PCE Index August 2023
- PCE Deflator (M/M) Aug: 0.4% (Est 0.5%; Prev 0.2%)
- PCE Deflator (Y/Y) Aug: 3.5% (Est 3.5%; PrevR 3.4%)
US Personal Income and Spending August 2023
- US Personal Income Aug: 0.4% (Est 0.4%; Prev 0.2%)
- US Personal Spending Aug: 0.4% (Est 0.5%; Prev 0.8%)
- US Real Personal Spending Aug: 0.1% (Est 0.0%; Prev 0.6%)
PCE Price Index
CPI v PCE Inflation?
The two inflation measures have different weightings. The CPI captures out-of-pocket expenditures by urban consumers. The PCE price index is broader, including spending on behalf of households, for example, employer-sponsored healthcare plans, Medicare and Medicaid. The PCE price index as a result has a heavier weight for healthcare prices. Meanwhile, housing costs account for a much bigger share of the CPI than the PCE price index.
Source: US Bureau of Economics
From The TradersCommunity News Desk