image

Which One Will Sway the Fed’s Outlook on Inflation?

What’s the Difference between the CPI and the PCE?

The FOMC, which sets the Federal Reserve’s monetary policy, judge’s inflation by the Personal Consumption Expenditure (PCE) price index. While the Consumer Price Index (CPI) looks at what people are buying, PCE looks at what businesses are selling.

The PCE tends to capture a broader picture of spending and contemplates substitution among goods when something gets more expensive – so if the price of bananas goes up, it takes into account that some people will start buying apples instead. PCE doesn’t just measure people’s out-of-pocket costs for health care, it also contemplates what Medicare is paying.

Inflation versus Core Inflation

Another term that gets mentioned a lot is “core inflation”. Both the CPI and PCE are calculated taking overall inflation minus food and energy into account. The government and the Federal Reserve prefer a measurement of inflation that takes out food and energy prices because they are quite volatile, and they can swing based on factors such as oil supply and severe weather. Economists and Fed policymakers prefer to take them out of the inflation equation to get a better sense of what’s going on in the economy.

Example:  March 2021 Consumer Price Index (CPI) Numbers

Earlier this month, March CPI was up 0.6 percent for the month – more than the 0.4 percent increase in February. But Core-CPI was up 0.3 percent. Over the past year, the Consumer Price Index was up 2.6 percent, but the core index increased by 1.6 percent.

Conclusion

Depending on which segment of the economy you’re looking at, you can tell different stories about what’s happening with inflation. But that’s where the Fed comes in. Inflation should not be a concern that keeps you up at night, that’s sort of the goal, from the Fed’s standpoint.

Below, say 2%, consumers generally don’t have to worry about it. Some prices will rise, some prices will fall: on balance, your wages keep going up with your overall cost of living, and you don’t have to think about it. That’s the Fed’s objective:  maintain control of inflation so people don’t have to worry about it in their daily lives. In order to do this, it focuses on the Personal Consumption Expenditure (PCE) price index.

The economy has started to get warmer and at times, we will see inflationary spikes as sectors reopen and consumers spend their stimulus money. Volatile food and energy prices will jump when compared to last year’s levels, but then conditions are expected to flatten out. At least that’s what the Fed is expecting. So at this time, expect higher inflation, but don’t worry about it spiraling out of control.


Source link

0 0 voter
Article Rating

S’abonner
Notifier de
0 Commentaires
Commentaires en ligne
Afficher tous les commentaires
Reset Password

Avertissement sur les risques :

Le trading peut vous exposer à des risques de pertes supérieures aux dépôts et ne convient qu’à une clientèle avisée ayant les moyens financiers de supporter un tel risque. Les CFD sont des instruments complexes et présentent un risque élevé de perte rapide en capital en raison de l’effet de levier. Entre 74 et 89% des comptes de clients de détail perdent de l’argent lors de la négociation de CFD. Vous devez vous assurer que vous comprenez comment les CFD fonctionnent et que vous pouvez vous permettre de prendre le risque élevé de perdre votre argent. Ce site n’est en aucun cas une offre de conseil en investissement ni une incitation quelconque à acheter ou vendre des instruments financiers. Trader le Forex et/ou les CFD’s implique un niveau de risque élevé, et peut ne pas être approprié car vous pouvez subir des pertes supérieures à votre dépôt. L’effet de levier peut être en votre défaveur.

Vous devez être conscient et avoir une compréhension complète de tous les risques associés au marché et au trading. Le site Union-trader.com peut être amené à produire des commentaires d’ordre général, ce qui ne constitue pas des conseils en investissement et ne doit pas être interprété comme tel.

Veuillez recourir aux conseils d’un conseiller financier extérieur. Le site Union-trader.com décline toute responsabilité pour les erreurs, inexactitudes ou omissions et ne garantit pas l’exactitude ou le caractère complet des informations, textes, graphiques, liens ou autres éléments contenus dans cette documentation. Toute information et toute mise à disposition sur le site ont un caractère privé.