One of the U.S. 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 PCE figures have been published by the Bureau of Economic Analysis as part of the December figures for personal income and expenditures report. At 0.2% for the month, core PCE inflation was in line with the market’s expectation. On an annual basis, it was steady at 1.5%. November’s comparable annual figure was 1.5% and October’s was 1.4%.
U.S. markets reacted by sending bond yields and the USD higher. 2 year bond yields increased by 2bps to 2.12% while yields on 10 year bonds and 30 year bonds each added 4bps to 2.70% and 2.95% respectively. The U.S. dollar was stronger against all other major currencies.