Core PCE Inflation Preview: Federal Reserve main inflation gauge set hit lowest level in more than two years

NEW YORK (January 26) The Core Personal Consumption Expenditures (PCE) Price Index, the US Federal Reserve’s (Fed) preferred inflation measure, will be published on Friday by the US Bureau of Economic Analysis (BEA) at 13:30 GMT.

What to expect in the Federal Reserve’s preferred PCE inflation report?

The Core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.2% on a monthly basis in December, up slightly from a 0.1% increase recorded in November. December Core PCE is also projected to grow at an annual pace of 3%, down from November’s 3.2%. The headline PCE Price Index is forecast to rise 2.6% (YoY).

Previewing the PCE inflation report, “[W]e look for December PCE data to continue supporting the idea of inflation deceleration, with the core series advancing at a near-trend 0.2% m/m — and below the core CPI's 0.3% increase,” said TD Securities analysts in a weekly report titled “Week Ahead: US Macro Market Movers.”

When will the PCE inflation report be released, and how could it affect EUR/USD?

The PCE inflation data is slated for release at 13:30 GMT. The monthly Core PCE Price Index gauge is the most-preferred inflation reading by the Fed, as it’s not distorted by base effects and provides a clear view of underlying inflation by excluding volatile items. Investors, therefore, pay close attention to the monthly Core PCE figure.

Nevertheless, the PCE inflation figures are unlikely to offer any significant surprises since the quarterly figures were already included in the Gross Domestic Product (GDP) report published on Thursday. On a quarterly basis, the Core PCE Price Index rose 2% on a quarterly basis in the fourth quarter, matching the market estimate and the third quarter’s increase.

Hence, market participants could pay close attention to underlying details, namely Personal Spending and Personal Income readings for December.

Personal Spending is expected to rise by 0.4% on a monthly basis following November’s 0.2% increase. In the same period, Personal Income is forecast to increase 0.3%. In case both of these data releases disappoint, investors could see it as a sign of weakening consumption that weighs on the US Dollar (USD) for the immediate reaction. On the other hand, upbeat figures are likely to support the USD in the near term.

FXStreet