Today's PCE Inflation Report - the Fed's favorite gauge (core PCE)

[progree]

The PCE Inflation report came out today, Friday 4/28/23. It was good on the overall inflation (see the red bars in the below graph), but the core PCE inflation still remains high, and has not come down much in recent months -- see the blue bars.

The Federal reserve's favorite inflation gauge for projecting FUTURE inflation has been the core PCE (which is the PCE less food and energy). It's not that food and energy are unimportant, but are quite volatile from month to month. The core measure is thought to be better for projecting trends into the future.




Below is the CORE PCE inflation trend -- the rolling 3 month average and the rolling 6 month average


The rolling 3 month average should improve quite a bit next month when the January +0.6% number falls outside the 3 month period.

*********LINKS
PCE News release: http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm

The above shows the last 5 months. I found the latest 12 months (and way beyond) at FRED:

PCE: https://fred.stlouisfed.org/series/PCEPI
CORE PCE: https://fred.stlouisfed.org/series/PCEPILFE

The rolling 3 month and 6 month figures are calculated from the index values from the above FRED series for the CORE PCE (not from doing one digit math averages).


Consumer Price Index (CPI) released April 12

For comparison purposes, here is the most recent consumer price index graph (through March, released April 12)

CPI - https://data.bls.gov/timeseries/CUSR0000SA0&output_view=pct_1mth
CORE CPI - http://data.bls.gov/timeseries/CUSR0000SA0L1E&output_view=pct_1mth
(Choose "More Formatting Options" at the upper right of the page for other views such as rolling averages of past 12 months, past 6 months, past 3 months)


Inflation measures - last 3 months annualized

. . REGULAR CORE
PCE 4.00%     4.85%
CPI 3.82%     5.11%
PPI -0.28%     3.61% (Producer Price Index, aka Wholesale Prices)

Cooling wholesale prices should ideally be reflected in the PCE and CPI in the next month or two, but seems not to be that good of a predictor.

A key inflation gauge tracked by Fed remained high in March, AP, 4/28/23

This is an excellent summary not only of the PCE inflation report that came out today, but also of the Employment Cost Index and the Personal Income and Personal Consumption Expenditures (consumer spending) reports that were also released today.

Interestingly, it says that rents carry twice the weight in the CPI as in the PCE.

Here are some excerpts from the inflation part --

A key index of underlying inflation that is closely followed by the Federal Reserve remained elevated last month, keeping the Fed on track to raise interest rates next week for the 10th time since March of last year.

The index, which excludes volatile food and energy costs to capture “core” prices, rose 0.3% from February to March and 4.6% from a year earlier — still far above the Fed’s 2% target rate. Some Fed officials are concerned that core inflation hasn’t declined much since reaching 4.7% in July.

Overall prices ticked up just 0.1% from February to March, the smallest monthly rise since last July and down from a 0.3% increase from January to February, Friday's Commerce Department report showed. Compared with a year ago, inflation slowed to just 4.2% from 5% in February, though much of that decline reflected lower gas prices. That is the lowest year-over-year overall inflation figure in nearly two years.

The Fed is thought to monitor the inflation gauge that was issued Friday, called the personal consumption expenditures (PCE) price index, even more closely than it does the government’s better-known consumer price index. Typically, the PCE index shows a lower inflation level than CPI. In part, that’s because rents, which have been among the biggest drivers of inflation, carry twice the weight in the CPI that they do in the PCE.

The PCE index showed that food prices dropped 0.2% from February to March. Gas costs plummeted 3.7%, which partly reflected seasonal changes. Prices at the pump have since increased in many states.

The latest inflation figures point to the dilemma confronting officials at the Federal Reserve: Across the economy, price increases for many goods have slowed significantly. And some previous drivers of inflation, notably clogged supply chains, have eased. Yet prices for many services, including restaurants, auto insurance and hotel rooms, are still surging, fueled by robust demand from consumers who in many cases have enjoyed rising wages.

Edited to add: Latest Breaking News thread on this: https://www.democraticunderground.com/10143067288

[bucolic_frolic]

1. My guess: inflation and personal spending will be far more resilient than the Fed hopes or thinks

due to the gig economy. There's a lot going on and their antiquated models aren't up to the task of measurement.