The United States Bureau of Economic Analysis is poised to release the much-anticipated Personal Consumption Expenditures (PCE) Price Index data for February on Friday at 12:30 GMT. Our monthly report preview predicts the February core PCE Price Index will show a 0.3% month-over-month increase. It projects a 2.7% increase compared to last year. As a result, this data release will be one of the most important indicators regarding inflation in the US economy. In particular, experts ascribe it the power to dramatically affect the US dollar and thereby world markets.
The PCE Price Index measures overall price increase for the goods and services people buy. It provides a more complete view of inflation compared with the Consumer Price Index (CPI). The Federal Reserve focuses its monetary policy decisions using the PCE Price Index. This index is central to the calculation of the PCE inflation rate. The index rate is used to decide if the overall economy is facing inflation or deflation.
The PCE Price Index comes out monthly. This index is an important input for calculating the GDP deflator, perhaps the most closely watched broad measure of economic activity. The PCE inflation rate is calculated from this index. That’s why experts, including the Federal Reserve, view it as a better indicator of inflation than the CPI inflation rate. This accuracy makes it an essential tool for the Federal Reserve when making decisions on interest rates, ultimately affecting borrowing costs and economic growth.
Plus, the PCE inflation rate is an important thermometer for the overall economic health of the US economy. Investors and analysts use this rate to guide their choices to determine the state of the economy. March’s data release will be extremely important. Not only does it provide important information about the trend of recent inflation, it provides some clues about future shifts in monetary policy.
As market participants await the release, attention is focused on how the data will influence trading activities in global markets. Conversely, an unexpected higher jump in the PCE Price Index would strengthen the US dollar. Such a turn would likely shift expectations about the future path of interest rates, too. On the other hand, a lower than expected reading would likely lead to a re-evaluation of the economic underlying conditions and future monetary policy moves.
While purposely complex and often opaque, the PCEPI’s thorough coverage and its role as a major input in other economic calculations highlight its significance. It’s a broad measure that serves as the primary indicator of consumer spending trends and price inflation movements around the economy. This granular look uncovers the inflationary squeeze across the economy.