Key Core Inflation PCE Measures Dropped in Q3 from Q2

The Core price index for personal consumption expenditures (Core PCE prices) in the US, which exclude food and energy, fell to 4.5% as expected in Q3 from 4.7% in Q2. The PCE Price Index dropped significantly to 4.2% in Q3 from 7.3% in Q2. 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. The numbers were released with the US Q3 advance GDP +2.6% vs +2.4% expected.  The GDP Price Deflator moved down to 4.1% consensus 5.3%) from 9.0% in the second quarter.

Personal consumption expenditures were up 1.4%, versus 2.0% in Q2, and added 0.97 percentage points to GDP growth. Spending on goods was down 1.2% (versus down 2.6% in Q2) while spending on services was up 2.8% (versus up 4.6% in Q2).

Highlights

  • Q3 GDP (initial estimate) +2.6% vs. +2.3% consensus and -0.6% in Q2.
  • PCE price index: +4.2% vs. +7.3% prior.
  • Core PCE price index: +4.5% vs. +4.5% expected and +4.7% prior.
  • Personal consumption expenditures: +1.4% vs. 2.0% in Q2.
  • Personal income increased $291.2B in Q3, down from the $305.7B increase in Q2.
  • Personal saving was $626.1B vs. $629.0B in Q2. Personal saving rate was 3.3% in Q3 vs. 3.4% in Q2.

PCE Price 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.

Core PCE Index Q3 2022

The core price index for personal consumption expenditures in the United States, which excludes food and energy, rose by an annualized 4.5 in the third quarter of 2022, following a 4.7 percent gain in the previous period, preliminary data showed

United States Core PCE Prices QoQ

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.

PCE Index Q3 2022

United States PCE Prices QoQ

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