Central Banks

US Core PCE Price Index (Fed preferred inflation indicator) is due Friday: Ranges to watch

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It’s a big data event ahead on the US for today, Friday 22 December, with the keenly awaited Core Personal Consumption Expenditures (PCE) Price Index:

  • due at 0830 US Eastern time

You can see the median consensus estimates in the screenshot above. The ranges for the Core PCE to watch are:

  • for m/m 0.0% to 0.3%
  • for y/y 3.1% to 3.5%

A result falling outside the range (the m/m is of most focus) could have an outsized impact on market movement (low should be ris supportive and vice versa).

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The Federal Reserve prefers the Core Personal Consumption Expenditures (PCE) Price Index over the Consumer Price Index (CPI) as a measure of inflation for several key reasons:

  • The Core PCE covers a broader range of goods and services than the CPI. While CPI focuses on out-of-pocket expenses for urban consumers, PCE includes expenditures on behalf of households, such as employer-paid health insurance and Medicare. This wider scope makes PCE a more comprehensive measure of consumer spending.
  • PCE adjusts for the substitution effect, where consumers might switch from higher-priced goods to lower-priced alternatives as prices change. CPI, on the other hand, uses a fixed basket of goods and services, which can overstate inflation if consumers shift their consumption patterns in response to price changes.
  • PCE specifically measures spending by individuals and can more accurately reflect the consumption patterns that are central to the U.S. economy.
  • The ‘core’ version of both indices (Core PCE and Core CPI) excludes food and energy prices, which are volatile. However, the Fed often gives more weight to Core PCE because of its broader coverage and substitution bias adjustment.
  • PCE data are subject to regular and comprehensive revisions that reflect the latest and most accurate information available. This can make PCE a more reliable measure over the long term.
  • Core PCE is a more stable and accurate reflection of the long-term inflation trends that guide monetary policy.

This article was written by Eamonn Sheridan at www.forexlive.com. Source