Core PCE Price Index

The Core Personal Consumption Expenditure (PCE) Price Index tracks the fluctuations in the prices of goods and services purchased by consumers and non-profit organizations, excluding food and energy costs. The Federal Reserve relies on the Core PCE index as its main inflation measure. This index is less subject to volatility compared to the overall PCE Price Index because it omits the more erratic prices of food and energy.

What is the Core PCE Index? The Core Personal Consumption Expenditures (PCE) Price Index is an economic metric that gauges inflation by monitoring price changes of goods and services acquired by consumers in the United States, excluding food and energy expenses. It is termed the “core” PCE index as it emphasizes the fundamental inflation trends by eliminating the fluctuating elements of food and energy prices. The Federal Reserve closely observes this indicator to evaluate the economy's condition and inform monetary policy decisions. Prices are weighted based on total expenditure for each item, measuring price changes from the consumer's viewpoint.

Why is the Core PCE Index important? The Core PCE Price Index holds significance for several reasons:

• Inflation measurement: It acts as a crucial indicator of inflation, offering insights into the price changes of goods and services over time. By excluding the volatile components of food and energy, it provides a more stable and precise representation of underlying inflation trends.
• Monetary policy: The Federal Reserve utilizes the Core PCE Price Index as its preferred inflation metric when formulating monetary policy. The Fed typically aims for an inflation target of around 2%. This index aids policymakers in deciding whether to modify interest rates or use other monetary tools to manage inflation and ensure price stability.
• Economic health: The Core PCE Price Index is a vital indicator of the overall health of the economy. A stable and moderate inflation level is deemed beneficial for economic growth. Conversely, high inflation can diminish purchasing power and generate economic uncertainty, while low inflation or deflation may indicate weak demand and a stagnant economy.

A higher-than-expected reading should be interpreted as positive for the USD, while a lower-than-expected reading should be viewed as negative 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), a division of the U.S. Department of Commerce. The index data is released as part of the monthly Personal Income and Outlays report. The BEA gathers and analyzes consumer spending data from various sources, including household surveys, retail sales figures, and information from businesses and government entities.

When is the Core PCE Index released? The Core PCE Price Index is published monthly, usually on the last business day of the month. The data can be accessed on the BEA’s website. The release includes both month-over-month and year-over-year changes in the index, offering timely and detailed insights into the inflation status of the U.S. economy.