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What Is It and Should I Care?


In this series, the 'Ville tackles a weighty, scary-sounding economic data release, bottom-lining the facts and explaining the significance. This installment: PCE Price Index. Awesome!

PCE Price Index
The closely-watched Personal Consumption Expenditures price index (PCEPI), or as some refer to it, the PCE deflator, or as others refer to it, the PCE price deflator, or as still others prefer to call it, the Implicit Price Deflator of Personal Consumption Expenditures, rose 0.4%% in January, while the so-called "core" Personal Consumption Expenditures (PCE), which excludes volatile food and energy components, increased 0.3%. Sweet, now what in the world did we just say?

What is it? Referred to by many different names in what might be viewed as an overt attempt to create mass confusion, anger and, ultimately, indifference, is really just another measure of price changes in goods and services purchased by consumers, hence the "personal" in Personal Consumption Expenditures.
The PCE Index incorporates data from both the Consumer Price Index and Produce Price Index, and is derived from the Personal Consumption Expenditures component of Gross Domestic Product.

Who reports it? The Bureau of Economic Analysis of the Department of Commerce.

When is the report released? Monthly; usually the last business day of the month.

How does it work? The PCE tracks consumer expenditure changes from quarter to quarter.
There are actually two measures of PCE we need to be aware of. One is an overall "headline" PCE measure. The other is a PCE measure that excludes "volatile" food and energy components, called the "Core" PCE.
A Brief Note on the Core. Because food and energy can fluctuate dramatically due to a wide variety of non-monetary factors (war, pipeline explosions, drought, hurricanes, etc.) it makes sense that the core is most important to economists and those who formulate monetary policy, even if it may seem they are ignoring the prices we pay at the grocery store and at the gas pump.

Who uses it? The Fed closely watches this index because it's a deeper, more robust measure of price changes and incorporates both the Consumer Price Index and the Producer Price Index in its composition.

Should I care?
Value to economists and academics: Four Pocket Protectors (out of possible five).

Value to professional market participants: Two Coins (out of possible five).

Impact on your 401(k): One South Florida Villa (out of possible five).
No positions in stocks mentioned.

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