US core PCE: “inflation pressures appear to be broadening”

Summary: US Fed’sfavoured inflation measure increases by 0.4% in October; in line with expectations; annual rate steady accelerates from 3.7% to 4.1%; “inflation pressures appear to be broadening”; Treasury bond yields up at front of curve, down elsewhere.

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 ran up well 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 October personal income and expenditures report. Core PCE prices rose by 0.4% over the month, in line with expectations but greater than September’s 0.2% increase. On a 12-month basis, the core PCE inflation rate accelerated from September’s revised rate of 3.7% to 4.1%.

“Interestingly, the PCE figures confirmed inflation pressures appear to be broadening with the separately released Dallas Fed Trimmed Mean PCE lifting to 2.6% from 2.3%, its highest rate since 2008,” said NAB senior economist Tapas Strickland.


US Treasury bond yields rose at the front of the curve but fell elsewhere on the day. By the close of business, the 2-year Treasury bond yield had added 2bps to 0.64%, the 10-year yield had shed 3bps to 1.64% while the 30-year yield finished 6bps lower at 1.96%.

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; the Fed 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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