The Core Personal Consumption Expenditure (PCE) Price Index measures the changes in the price of goods and services bought by consumers and non-profits, excluding food and energy.
The Federal Reserve uses the Core PCE index as its primary measure of inflation.
The Core PCE Price Index is less volatile than the PCE Price Index since it does not include more volatile food and energy prices.
What is the Core PCE Index?
The Core Personal Consumption Expenditures (PCE) Price Index is an economic indicator that measures inflation by tracking the changes in prices of goods and services purchased by consumers in the United States, excluding food and energy costs.
It is considered the “core” PCE index because it focuses on the underlying inflation trends by removing the volatile components of food and energy prices.
The Federal Reserve closely monitors this metric as it helps them assess the state of the economy and guide monetary policy decisions.
Prices are weighted according to total expenditure per item. It measures price change from the perspective of the consumer.
Why is the Core PCE Index important?
The Core PCE Price Index is significant for several reasons:
- Inflation measurement: It serves as an essential gauge of inflation, providing insight into the price changes of goods and services over time. By excluding the volatile food and energy components, it presents a more stable and accurate reflection of the underlying inflation trends.
- Monetary policy: The Federal Reserve uses the Core PCE Price Index as its preferred inflation measure when setting monetary policy. The Fed’s inflation target is typically around 2%. This index helps policymakers determine whether they need to adjust interest rates or employ other monetary tools to control inflation and maintain price stability.
- Economic health: The Core PCE Price Index is an essential indicator of the economy’s overall health. A stable and moderate level of inflation is considered healthy for economic growth. However, high inflation can erode purchasing power and create economic uncertainty, while low inflation or deflation can signal weak demand and a stagnating economy.
A higher-than-expected reading should be taken as bullish for the USD
A lower-than-expected reading should be taken as bearish for the USD.
Who publishes the Core PCE Index?
The Core PCE Price Index is calculated and published by the Bureau of Economic Analysis (BEA), an agency within the U.S. Department of Commerce.
The data for the index is released as part of the monthly Personal Income and Outlays report.
The BEA collects and analyzes data on consumer spending patterns from various sources, including household surveys, retail sales data, and information from businesses and government agencies.
When is the Core PCE Index released?
The Core PCE Price Index is released on a monthly basis, typically on the last business day of the month.
The data is available on the BEA’s website.
The release includes both the month-over-month and year-over-year changes in the index, providing timely and detailed information on the state of inflation in the U.S. economy.