Personal consumption expenditure is one of the personal income reports and outlays, personal income includes income from wages and salaries and other income, plus transfers from the government less employee’s social insurance contributions. On the other hand, personal consumption expenditure (PCE) measures the changes in the prices of goods and services purchased by consumers (both durable and non-durable) and services, thus the PCE is key barometer for deflation/inflation.
The US Core PCE MoM will be announced Friday September 30th, although the CPI is the best well known inflation indicator that gets the highest attention from the media, the Fed relies more on the PCE; a primary reason for the preference is that the PCE index measures the change in goods and services consumed by all households and nonprofit institutions serving households while the CPI measures the change in all out-of-pocket expenditures of all urban households.
The latest PCE reading in July was 6.3% YoY, down 0.5% from June’s 6.8% and significantly down to -0.1% MoM versus June’s 1%. Core PCE which excludes foods and energy was down to 0.1% MoM in July, less 0.5% from June’s 0.6% reading. With minimal slowdown, the core PCE YoY for July read 4.6% YoY down 0.2% from June’s 4.8% reading.
The impact of lower energy prices as of June 2022 and tightening policy executed by the Fed at March 2022 were obvious on the monthly PCE change however not on the YoY changes which were minimal on both the YoY CPE and YoY Core CPE indicating, that pressure on demand and energy prices needs to be intensified. The Fed would sustain the aggressive interest rate hike policy and the interest increase forecasted ceiling might project higher than the 4.4% if required as announced in the last FOMC meeting held in September, updated QoQ PCE and CPI readings for October impacted by September’s 0.75% interest rate hike would guide the FOMC’s November meeting.
Strategists are forecasting PCE MoM reading for August to be 0.5%. As commented by Anna Wong, Bloomberg Economics’ chief US economist: The core consumer price index — which excludes volatile food and energy prices — jumped 0.6% in August and accelerated to 6.3% from the period a year earlier. But the core version of the personal consumption expenditures price index, which the Fed uses for its 2% inflation target, is likely to slow to around 4.3.
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