Inflation Higher with Fed Reserve Key Measure Core PCE Rising 0.6% in August

Core PCE prices in the US, which exclude food and energy, rose 0.6% month-over-month in August of 2022, above market expectations of a 0.5% rise. Core PCE unexpectedly rose to 4.9% from upwardly revised 4.7 percent in the prior month and expectations of 4.7. Federal Reserve Governor Chairman Powell reminded us at the FOMC that the Fed’s key influence or measure for inflation is the core PCE index. Food prices increased 12.4 percent and energy prices increased 24.7 percent over the year.

The PCE price index is closely watched since it is the preferred inflation measure of the Federal Reserve, which begun 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 2022

  • Core PCE +4.9% y/y vs +4.7% expected
  • Prior was 4.6% y/y
  • PCE core inflation +0.6% m/m vs +0.5% expected Prior MoM +0.1%
United States Core Personal Consumption Expenditure Price Index
United States Core Personal Consumption Expenditure Price Index

PCE Index August 2022

  • PCE Price Index was up +6.2% y/y vs +6.3% prior (revised to +6.4%)
  • PCE Price Index was up 0.3% m/m vs -0.1% prior
  • Deflator MoM +0.3% vs -0.1% prior
  • Prices for goods decreased 0.3 percent
  • Prices for services increased 0.6 percent.
  • Food prices increased 0.8 percent and energy prices decreased 5.5 percent.

PCE Price Index

United States PCE Price Index Annual Change
United States Personal Consumption Expenditure 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