The US Fed takes into consideration several price indices when evaluating the rate of inflation. It says it does so because “various indexes (sic) can send diverse signals about inflation”. One of its favoured measures of inflation is the core personal consumption expenditure. The core version of consumer spending strips out energy and food components, which are volatile from month to month, in an attempt to identify the prevailing trend. It’s not the only measure of inflation used; the Fed also tracks the Consumer Price Index (CPI) and Producer Price Index (PPI) from the Department of Labor. Its view of inflation is important as it forms the basis for the FOMC’s interest rate settings.
The latest core PCE figures have been published by the Bureau of Economic Analysis as part of December figures for personal income and expenditures. At 0.1% for the month and 1.7% year on year, the figures were in line with market expectations.
