Core PCE inflation Rises to +4.2% from 4.1% in July Keeping Fed Awake

The Federal Reserve’s preferred inflation gauge, core PCE Price Index, which omits food and energy, came in per consensus at persistently high levels in July. Core-CPE Price Index was up 4.2%, versus 4.1% in June. The key takeaway from the report would have to be the uptick in the year-over-year inflation readings. Not alarming but the Fed will notice as it looks at a basis not to cut rates in the near future. Prices as measured by the PCE index over the past year was up 3.3%, versus 3.0% in June, which was the lowest level in two years. In response stock futures climbed and Treasury two-year yields fell on hopes could reduce the pressure on the Federal Reserve to deliver more hikes by the end of 2023. Lower gas prices have been the main impact.

Personal income rose 0.3% in June (consensus 0.5%) following a revised 0.5% increase in May (from 0.4%). Personal spending rose 0.5% in June (consensus 0.3%) following a revised 0.2% increase in May (from 0.1%). Real personal spending rose +0.4% vs 0.0% prior (revised to +0.1%) in June.

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.


Core PCE Index July 2023

  • PCE core inflation (Y/Y) +4.2% y/y v +4.2% expected Prior +4.1%
  • PCE core +0.2% m/m vs +0.2% expected Prior MoM +0.2%
United States Core PCE Price Index Annual Change
United States Core PCE Price Index MoM
United States Core Personal Consumption Expenditure Price Index
United States Core Personal Consumption Expenditure Price Index

PCE Index May 2023

  • Headline inflation PCE +3.3% y/y vs +3.3% expected (Prior +3.0%)
  • Deflator +0.2% m/m vs +0.2% expected (prior +0.2%)
United States PCE Price Index Annual Change
United States Personal Consumption Expenditure Price Index
United States PCE Price Index Monthly Change

US Personal Income and Spending June 2023

  • Personal income +0.2% v +0.3% expected. Prior +0.3%
  • Personal spending +0.8% vs +0.7% expected. Prior month +0.5%
  • Real personal spending +0.6% vs 0.4% prior
United States Personal Income
US Personal spending

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