US core PCE steady for third consecutive month in August

Summary: US Fed’s favoured inflation measure increases by 0.3% in August; slightly higher than market expectations; annual rate steady at 3.6%; Treasury bond yields moderately lower.

One of the US Fed’s favoured measures of inflation is the change in the core personal consumption expenditures (PCE) price index. After hitting the Fed’s target at the time of 2.0% in mid-2018, the annual rate then hovered in a range between 1.8% and 2.0% before it eased back to a range between 1.5% and 1.8% through 2019. It then plummeted below 1.0% in April 2020 before rising back to around 1.5% in the September quarter of that year. It has since spiked up above 3% in this year’s June and September quarters.

The latest figures have now been published by the Bureau of Economic Analysis as part of the August personal income and expenditures report. Core PCE prices rose by 0.3% over the month, slightly higher than the 0.2% increase which had been generally expected figure but in line with July’s increase. On a 12-month basis, the core PCE inflation rate remained unchanged at 3.6% for a third consecutive month.

US Treasury bond yields fell moderately on the day. By the close of business, the 2-year Treasury bond yield had slipped 1bp to 0.27%, the 10-year yield had lost 4bps to 1.46% while the 30-year yield finished 3bps lower at 2.03%.

The core version of PCE strips out energy and food components, which are volatile from month to month, in an attempt to identify the prevailing trend. It is not the only measure of inflation used by the Fed; it also tracks the Consumer Price Index (CPI) and the Producer Price Index (PPI) from the Department of Labor. However, it is the one measure which is most often referred to in FOMC minutes.

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