One of the US Fed’s favoured measures of inflation is core personal consumption expenditure (PCE). 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.
The latest core PCE figures have been published by the Bureau of Economic Analysis as part of January figures for personal income and expenditures. At 0.3% for the month and 1.7% year on year, the numbers were under market expectations of 0.5% and 1.8% respectively. Even so, they were noted but generally ignored by markets who were focussed on the stream of public statements made by Fed officials with regards to the next increase in the federal funds rate.
These numbers may be used by some in the Fed to support a cautious approach to raising the US official rate. As NAB’s Global Co-Head of FX Strategy, Ray Attrill suggested they are “something that the likes of Fed dove Neil Kashkari will use to support his claim the Fed should be in no rush to tighten.” However, in light of the number and strength of recent hawkish statements by other Fed officials, it would appear members such as Kashkari are in the minority.