The core personal consumption expenditure price index (Core PCE prices) in the US, which exclude food and energy, rose by 0.3% versus 0.4% expected. Last month 0.5% revised down from 0.6%. The annual rate, the Federal Reserve’s preferred gauge of inflation came in at 4.6% vs 4.7% expected, down from the prior 4.7%. The markets recognized that the Fed will be more confident that hiking 25 bps at the last FOMC was correct and 5.25% is a just terminal rate. The report reminded us of stagflation risk, real spending fell while the inflation rates while still too high for the Fed’s liking are slowing.
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. There will be one more PCE report before the May 3 FOMC and the market is currently pricing in a 55% chance of a 25 bps hike.
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 February 2023
- US PCE Core Deflator (M/M) Feb: 0.3% (est 0.4%; prevR 0.5%)
- US PCE Core Deflator (Y/Y) Feb: 4.6% (est 4.7%; prev 4.7%)
PCE Index February 2023
- US PCE Deflator (M/M) Feb: 0.3% (est 0.3%; prev 0.6%)
- US PCE Deflator (Y/Y) Feb: 5.0% (est 5.1%; prevR 5.3%)
- Cost of goods went up 0.2 percent, slowing from a 0.6 percent rise in January and services cost increased 0.3 percent, less than a 0.6 percent increase in the prior month.
- Food prices went up 0.2 percent, after a 0.4 percent increase
- Energy prices declined 0.4 percent, after surging 2 percent.
- The annual rate eased to 5 percent, the lowest since September 2021.
US Personal Income and Spending February 2023
- US Personal Income Feb: 0.3% (est 0.2%; prev 0.6%)
- US Personal Spending Feb: 0.2% (est 0.3%; prev 1.8%)
- US Real Personal Spending Feb: -0.1% (est -0.1%; prev 1.1%)
- Increase of $25.8 billion in spending for services and an increase of $2.0 billion in spending for goods.
- Within services, increases in housing and health care were partly offset by a decrease in food services and accommodations.
- Within goods, increases in gasoline and other energy goods, “other” nondurable goods (led by pharmaceuticals), and food and beverages were partly offset by a decrease in motor vehicles and parts (mainly new and used light trucks).
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