US core PCE inflation set to tick up slightly as markets fully price in Federal Reserve rate cut

NEW YORK (August 3) The US Bureau of Economic Analysis (BEA) will release the high-impact core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred inflation gauge, on Friday at 12:30 GMT.

The PCE inflation data could shape the next direction for the US Dollar (USD) heading into the Nonfarm Payrolls week.

PCE Index: What to expect from the Federal Reserve’s preferred inflation measure?

The core PCE Price Index is set to rise 0.2% over the month in July, at the same pace as seen in June. On year, core PCE is projected to grow by 2.7%, while the headline annual PCE inflation is seen ticking higher to 2.6% in the same period.

The core PCE Price Index, which excludes volatile food and energy prices, has a significant impact on the market’s pricing of the Fed’s interest rates outlook. The gauge is closely monitored by the central bank and market participants, as it’s not distorted by base effects and provides a clear view of underlying inflation by excluding volatile items.   

Data published by the BLS earlier this month showed that the US Consumer Price Index (CPI) rose 2.9% on a yearly basis in July while the core CPI increased 3.2% in the same period, a tad slower than June’s rise of 3.3%.

Previewing the PCE inflation report, “Core PCE inflation likely stayed under control, with prices advancing at a soft 0.13% MoM pace in July. Given shelter price strength acted as a driver of core CPI inflation, the core PCE will not increase as much,” TD Securities analysts said.

“Headline PCE inflation likely printed 0.12% MoM. We also expect personal spending to provide a solid Q3 start, rising firmly at 0.5% MoM and 0.4% MoM in real terms,” they added.

FXStreet