The Fed’s preferred inflation gauge, core PCE Price Index, held steady at persistently high levels in March. The personal consumption expenditure price index (Core PCE prices) in the US, which exclude food and energy, rose by 0.3% versus 0.3% expected. The annual rate, the Federal Reserve’s preferred gauge of inflation came in at 4.6% year-over-year versus 4.7% in February. 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.
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 March 2023
- US PCE Core Deflator (M/M) Mar: 0.3% (est 0.3%; prev 0.3%)
- US PCE Core Deflator (Y/Y) Mar: 4.6% (est 4.6%; prev 4.6%)
PCE Index March 2023
- US PCE Deflator (M/M) Mar: 0.1% (est 0.1%; prev 0.3%)
- US PCE Deflator (Y/Y) Mar: 4.2% (est 4.1%; prevR 5.1%)
- The cost of goods fell 0.2 percen, from a 0.1 percent increase in February
- Services inflation slowed to 0.2 percent from 0.4 percent.
- Food prices went down 0.2 percent and energy prices tumbled 3.7 percent.
US Personal Income and Spending March 2023
- US Personal Income Mar: 0.3% (est 0.2%; prev 0.3%)
- US Personal Spending Mar: 0.0% (est -0.1%; prev 0.2%)
- US Real Personal Spending Mar: 0.0% (est -0.1%; prev -0.1%)
- Consumption of services saw a 0.4 percent increase, driven by higher spending on housing and utilities as well as healthcare services.
- In contrast, consumption of goods decreased by 0.6 percent, with lower spending on motor vehicles and parts as well as gasoline and other energy goods.
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