PCE Price Index Update:
The Disinflationary Trend Continues
The April Personal Income and Outlays report for March was published today by the Bureau of Economic Analysis.
The latest Headline PCE price index year-over-year (YoY) rate of 0.97% is a decrease from last month's adjusted 1.34%. The Core PCE index of 1.13% is decrease from the previous month's adjusted 1.29%.
The current disinflationary trend in core PCE must certainly be troublesome to the Fed. After years of ZIRP and waves of QE, this closely watched indicator has been consistently moving in the wrong direction for the past year. It has contracted month-over-month for nine of the last 12 months since its interim high of 1.96% in March of 2012.
The first chart shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. I've highlighted 2 to 2.5 percent range. Two percent had generally been understood to be the Fed's target for core inflation. However, the December 12 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place.
I've calculated the index data to two decimal points to highlight the change more accurately. It may seem trivial to focus such detail on numbers that will be revised again next month (the three previous months are subject to revision and the annual revision reaches back three years). But core PCE is such a key measure of inflation for the Federal Reserve that precision seems warranted.
For a long-term perspective, here are the same two metrics spanning five decades.
Note: I use the data from Table 9 in the full release and tables available here.