Fed Eyes Core PCE Report for Inflation Clues

The Federal Reserve is closely watching the upcoming August core PCE report for clues on inflation trends. The Bureau of Economic Analysis will release the data as part of its personal income and outlay report on Wednesday, which is expected to show a modest increase in headline PCE inflation of 0.4% month-over-month (M/M) and core PCE inflation of 0.3% M/M.

The consensus estimates for the August report are based on previous data, but revisions to PCE inflation will also be included, which could impact the overall picture. Citi economist Veronica Clark expects these revisions to reduce recent year-over-year (Y/Y) core PCE readings by about 30 basis points, resulting in a lower core PCE growth rate of 3.0%.

The Fed has traditionally placed more weight on the core PCE as a gauge of underlying inflation trends than the Consumer Price Index. SA Analyst James Picerno believes that the data release will likely reinforce the case for further interest rate hikes this year, saying 'The overall report, if accurate, will do little to persuade policymakers that more rate hikes are unnecessary.'