What is Core PCE?

The Core Personal Consumption Expenditures (PCE) Price Index is a key gauge of consumer inflation in the U.S., developed by the Bureau of Economic Analysis of the U.S. Department of Commerce. It is adopted by the Federal Reserve's decision-making body, the Federal Open Market Committee (FOMC), as a major indicator for measuring inflation. The Core PCE excludes food and energy prices, focusing on the changes in prices for other consumer goods and services. In January 2021, the Federal Reserve set a long-term inflation target of 2% for the Core PCE annual growth rate.

U.S. July PCE in Line with Expectations

In July of this year, the Core PCE Price Index in the U.S. rose 2.6% year-on-year, below the expected 2.7% and unchanged from the previous value. On a month-to-month basis, it grew by 0.2%, meeting both the expectation and the prior value. Additionally, the annualized three-month growth rate of the Core PCE was 1.7%, the lowest growth rate of the year to date.

source：U.S. Bureau of Economic Analysis

Current Economic Conditions and Interest Rate Cut Outlook: Inflation Stability and Market Reactions

The increase in housing prices within the core index was modest at 0.1%, compared to a 0.4% rise in housing prices in July. Personal income growth slightly exceeded expectations, while consumer spending aligned with forecasts. Despite a decline in the personal savings rate to 2.9%, consumption remains robust. Inflation changes over the past month have been minimal, with commodity prices nearly flat and service prices rising. Food and energy prices increased by 1.4% and 1.9%, respectively. The market reacted calmly, with slight rises in stock index futures and Treasury yields. Economist Joseph Brusuelas commented, “This indicates that the U.S. economy is re-establishing price stability.” He added, “As the Federal Reserve begins to cut interest rates, the U.S. economy is expected to reach or exceed a long-term growth rate of 1.8%, which should lay the foundation for economic growth and job creation. With declining interest rates, this data supports risk-taking in the business sector and among investors, who now anticipate continued economic expansion.”

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