Personal Consumption Spending Price Index Shows Signs of Slowing Inflation

Personal Consumption Spending Price Index: The Federal Reserve pays close attention to the personal consumption spending price index. In June, the index showed signs of slowing down. Excluding food and energy, the average increased by 0.2%, aligning with Dow Jones’ prediction. The core PCE, including food and energy costs, increased by 4.1% YoY, slightly below the expected 4.2%. The yearly rate in May was 4.6%, the lowest since September 2021.

Headline PCE inflation, with food and energy costs, increased by 0.2% monthly and 3% annually. The annual rate was 3.8% in May, down from March 2021.

Stock futures rose and Treasury yields fell in response to positive news. George Mateyo, Chief Investment Officer at Key Private Bank, is optimistic about risk assets as inflation decreases and the economy
continues to grow. This could allow the Fed to halt interest rate hikes.

Personal Consumption Spending Price Index

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The latest numbers confirm inflation is decreasing compared to last year’s high rates. The CPI and customer expectations indicate slower inflation, aligning with long-term trends.

The PCE index is used by the Federal Reserve as it considers customer behavior and provides an alternative view of price trends, unlike the CPI.

The Commerce Department reported that personal income increased by 0.3% and spending increased by 0.5% alongside inflation figures. Slightly less money came in, but spending remained unchanged. The Fed has raised rates 11 times since March 2022, reaching a 22-year high of 5.25–5.5%.  The report comes after the 11th increase. Chairman Powell said that future choices about interest rates should be based on data.

In Q2, compensation costs went up by 1%, which was a little less than the 1.1% rise that was expected.

Our Reader’s Queries

What is difference between CPI and PCE?

Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) are two measures of inflation. CPI collects data from consumers, while PCE sources from businesses. The difference in the types of expenditures tracked by CPI and PCE results in what is known as the scope effect. This effect highlights the varying scopes of these two measures and how they impact the overall inflation rate.

What is the personal cost index?

The PCE Price Index, also known as PCEPI, is a measure of the prices that consumers pay for goods and services, and how those prices change over time. This index is widely used as an indicator of inflation in the U.S. economy. By tracking changes in consumer prices, the PCEPI provides valuable insights into the overall health of the economy and helps policymakers make informed decisions about monetary policy.

How do you calculate the PCE index?

To determine the PCE inflation rate, we add up the dollar values of a basket of goods and services and compare it to the previous month’s data. This helps us understand the changes in prices over time.

What is the personal consumption expenditure and consumer price index?

The CPI gauges the shift in expenses paid by city households, while the PCE index tracks the shift in goods and services consumed by households and non-profit institutions.

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