The Fed’s preferred inflation gauge, core PCE Price Index, proved higher than consensus at persistently high levels in April. The markets recognized the report showed a combination of a robust 0.5% increase in real spending and the uptick in the year-over-year rates for the PCE Price Index and core-PCE Price Index. That combination will give the Fed some pause about pausing its rate hikes in June. The personal consumption expenditure price index (Core PCE prices) in the US, which exclude food and energy, rose by 0.4% versus 0.3% expected. The annual rate, the Federal Reserve’s preferred gauge of inflation came in at 4.7% year-over-year versus 4.6% in March.
Personal income increased 0.4% month-over-month in April (consensus 0.4%) following a 0.3% increase in March. Personal spending increased 0.8% month-over-month (consensus 0.4%) following an upwardly revised 0.1% increase (from 0.0%) in March.
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 April 2023
- US PCE Core Deflator (M/M) Apr: 0.4% (est 0.3%; prev 0.3%)
- US PCE Core Deflator (Y/Y) Apr: 4.7% (est 4.6%; prev 4.6%)
- Core services excluding housing +0.42%
- Core goods on a three-month annualized basis +2.1%
- US Real Personal Spending Apr: 0.5% (est 0.3%; prev 0.0%)
PCE Index April 2023
- US PCE Deflator (M/M) Apr: 0.4% (est 0.3%; prev 0.1%)
- US PCE Deflator (Y/Y) Apr: 4.4% (est 4.3%; prev 4.2%)
- US Real Personal Spending Apr: 0.5% (est 0.3%; prev 0.0%)
US Personal Income and Spending March 2023
- US Personal Income Apr: 0.4% (est 0.4%; prev 0.3%)
- US Personal Spending Apr: 0.8% (est 0.5%; prev 0.0%)
- US Real Personal Spending Apr: 0.5% (est 0.3%; prev 0.0%)
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