One of the US Fed’s favoured measures of inflation is the change in the core personal consumption expenditures (PCE) price index. The core version 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 figures have been published by the Bureau of Economic Analysis as part of the July personal income and expenditures report. At +0.2% for the month, core PCE inflation was up from June’s +0.1% and in line with expectations.
US financial markets were largely focussed on emerging market disarray and trade issues when the report was released and investors had already shifted to a “risk-off” setting. Bond yields finished the day a little lower while the US dollar was stronger against the euro but weaker against the yen and steady against sterling. 2-year, 10-year and 30-year yields each eased by 2bps to 2.65%, 2.86% and 3.00% respectively.
On an annual basis, the index grew by 2.0%, up from June’s 1.9% after revisions. Annual core PCE inflation has been moving higher since March after ranging between 1.3% and 1.6% for around a year. It is now at the Fed’s target.