US Feds Preferred Inflation Measure Released: Rises 0.2% - What Does It Mean?

The Federal Reserve closely monitors inflation to make informed decisions about monetary policy. The latest reading of the Federal Reserve's preferred inflation gauge showed price increases slowed in April as inflation remained above the Fed's 2% target. This preferred measure is the Personal Consumption Expenditures (PCE) price index, and the core PCE price index, which excludes volatile food and energy costs, is particularly important.

The Federal Reserve seeks to achieve inflation at the rate of 2 percent over the longer run as measured by the annual change in the PCE. While the personal consumption expenditures index report released Friday showed inflation still slowing, it remains above this target. The so-called core personal consumption expenditures price index rose 0.3 per cent in January from the previous month, illustrating the ongoing challenge of bringing inflation down to the desired level.

Fresh data released on Friday showed inflation held steady in July on a yearly basis and consumer spending was robust, the latest sign that progress toward cooler price increases is gradual. The Federal Reserve’s preferred measure of underlying US inflation rose at a mild pace and household spending picked up in July, reinforcing policymakers’ plan to start [discussing potential policy shifts/rate adjustments].

More recently, the Core PCE Price Index, the Federal Reserve's preferred inflation measure, edged up 0.1% M/M in April, matching the consensus estimate and unchanged from 0.1% in March. This subtle rise suggests that inflationary pressures are persistent, requiring careful consideration from the Federal Reserve regarding future interest rate decisions. This is important information for consumers and investors alike.