The US Federal Reserve uses the PCE (personal consumption expenditures price index) as its preferred inflation measure

  • Its due today in the US at 1230GMT (0830 ET)
  • Core PCE is expected at +0.1% m/m and +1.3% y/y, from priors of +0.1% m/m and +1.2% y/y

Past y/y:

The PCE is favoured over the CPI as it includes a broader range of expenditures. It's a more comprehensive measure of inflation than the CPI. In brief (this is a brutally truncated view of how the two differ):

  • The CPI measures prices paid by urban consumers for a common basket of goods and services, the PCE measures prices paid by for all goods and services, purchased by conusmers, businesses, or governments on behalf of consumers.
  • CPI and PCE use different data sources
  • The weights assigned to items in the indices differ

The Federal Reserve use the PCE in preference to the CPI, but does pay heed to both.

Check out the graph, above. Regardless of the differences in the CPI and PCE the basic story is the same ... measured inflation is low and the trend has been down. Falling oil prices, and commodities more generally, have been declining in price.

The data today will be scoured for signs of a pick up in inflation. The Federal Reserve have been saying the labor market is tightening, and that they have concerns about financial stability, but what they are not saying is that inflation is a concern.

OK ... but the Federal Reserve, through the FOMC, have been very clear in saying they'll hike rates well before inflation gets to the 2% target, that they'll hike if inflation is showing signs of moving towards that level. I'm looking at the graph above, I'm squinting, I'm using one eye, I'm bring it in and out of focus. It doesn't matter what I do, I can't see any sign of inflation moving in the direction of 2%. That's what the market is going to look for in today's release


more to come