The Federal Reserve’s preferred inflation gauge, the personal consumption expenditure (PCE) price index will be unveiled on Friday, May 26. The April PCE report on inflation arrives at a time when there is increasing speculation as to whether the Fed will raise interest rates again in July after briefly pausing in June.
Before the PCE Inflation Release
Here are some important details to consider ahead of the PCE inflation release:
- Economists predict that the headline PCE will increase by 0.3% month on month in April versus the 0.1% in March, edging up 4.3% year-on-year from the 4.2% in March.
- While excluding energy and food providing a more exact reading of the underlying causes of inflation, Core PCE inflation is predicted to stay stable at a monthly rate of 0.3% and a yearly rate of 4.6%.
- The recent Federal Open Market Committee (FOMC) minutes observed that “recent data for core PCE goods prices came in above expectations, and the staff judged that supply-demand imbalances in goods markets were easing a bit more slowly than anticipated.”
- For the past month, the inflation rate of the consumer price index (CPI) decreased year on year from 5% to 4.9%. In addition, core CPI inflation decreased slightly from 5.6% to 5.5%.
- In the CPI index, shelter is the largest component accounting for one-third of the basket. In the PCE price index, on the other hand, the essential components are medical care (20-21%) and housing with energy (17-18%).
- The dollar is trading at its highest level in over ten weeks. At the same time, the yield on the two-year Treasury note has risen for ten consecutive sessions, returning to mid-March levels.
- The Invesco DB USD Index Bullish Fund ETF with the ticker UUP and as a gauge of the dollar index (DXY) seems to be on its way to registering its third consecutive week of gains.
- Investors’ expectations for a Fed rate hike have increased recently. The market expects a rate hike with a probability of just under 40% for the June meeting, rising to 66% for the July meeting.
Chart: Core PCE vs. PCE Inflation
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