Fed’s Key Inflation Measure Core PCE Rises 0.2% in October as Personal Spending Picks Up

The core personal consumption expenditure price index (Core PCE prices) in the US, which exclude food and energy, rose by 0.2 percent month-over-month in October of 2022 less than 0.3% expected.  The annual rate, the Federal Reserve’s preferred gauge of inflation, fell to 5.0 percent from 5.1 percent, below expectations of 5.2 percent.  Federal Reserve Governor Chairman Powell reminded us yesterday at the FOMC that the Fed’s key influence or measure for inflation is the core PCE index. Notably personal spending, adjusted for changes in prices, rose 0.5% in October, the most since the start of the year and largely reflecting a surge in outlays for merchandise.

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.

Powell emphasized Wednesday in a speech at the Brookings Institute that the US is far from price stability and that it will take “substantially more evidence” to provide comfort that inflation is actually declining.

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 October 2022

  • Core-PCE Price Index, which excludes food and energy, increased 0.2% (consensus 0.2%).
  • On a year-over-year basis, the core-PCE Price Index was up 5.0%, versus 5.2% in September.
United States Core PCE Price Index Annual Change
United States Core Personal Consumption Expenditure Price Index
United States Core Personal Consumption Expenditure Price Index

PCE Index October 2022

  • PCE Price Index was up 0.3% month-over-month (consensus 0.4%)
  • On a year-over-year basis, the PCE Price Index was up 6.0%, versus 6.3% in September. It is the lowest reading so far this year.
  • Prices for goods increased 7.2%
  • Prices for services rose 5.4%.
United States PCE Price Index Annual Change
United States Personal Consumption Expenditure Price Index

US Personal Income and Spending

  • US Personal income increased 0.7% month-over-month in October (consensus 0.4%) following a 0.3% increase in September.
  • Personal spending jumped 0.8% (consensus 0.8%) following a 0.6% increase in September.
  • Real personal spending was up 0.5% month-over-month and up 1.8% year-over-year (versus up 2.0% in September).
  • Real disposable personal income was up 0.4% month-over-month and down 3.0% year-over-year (versus down 3.4% in September).
  • Wages and salaries were up 0.5% month-over-month following a 0.6% increase in September.
  • Proprietors’ income was flat month-over-month following a 0.3% increase in September.
  • Rental income was up 0.3% month-over-month after increasing 0.3% in September.
  • Personal current transfer receipts increased 1.6% month-over-month after being unchanged in September.
  • The personal savings rate as a percentage of disposable income was 2.3%, down from 2.4% in September.
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