Personal Consumption Expenditures Price Index (PCE)

Table of Contents

1. What is the Personal Consumption Expenditures Price Index (PCE)?
   Impact on the Market
   Key Considerations
   Release Time (Summer & Winter Time)
   Conclusion

1. What is the Personal Consumption Expenditures Price Index (PCE)?

Overview

The Personal Consumption Expenditures Price Index (PCE) is an inflation indicator that measures changes in the prices of goods and services consumed by households in the U.S. It is the Federal Reserve’s preferred inflation gauge and plays a critical role in determining monetary policy.
The PCE index is published monthly by the Bureau of Economic Analysis (BEA) and reports price movements from the previous month.

There are two main types of PCE:

• Headline PCE: Includes all items, including food and energy.
• Core PCE: Excludes food and energy prices and is the most important indicator for the Federal Reserve.

Since food and energy prices are highly volatile, the Fed focuses more on Core PCE when assessing long-term inflation trends.

2. Impact on the Market

Because PCE is the primary inflation metric used by the Fed, it has a significant impact on financial markets. In particular, Core PCE is closely monitored by policymakers and investors to predict interest rate trends.

Market Reactions

Higher-than-expected PCE (strong inflation pressure) → Increases expectations for further Fed rate hikes → USD appreciation (stronger dollar) → Negative for stocks due to tightening monetary policy → Bond yields rise, and bond prices fall

Lower-than-expected PCE (weak inflation pressure) → Increases the likelihood of a Fed rate pause or rate cut → USD depreciation (weaker dollar) → Positive for stocks as lower rates support economic growth → Bond yields fall, and bond prices rise

One key point is whether the PCE inflation rate remains above or below the Fed’s target of 2.0%. If inflation stays persistently above 2.0%, the Fed is likely to maintain or raise interest rates further.

3. Key Considerations

1. Difference Between PCE and CPI

The Consumer Price Index (CPI) is often compared with PCE. While CPI measures inflation based on urban consumer spending, PCE covers a broader range of consumption across the U.S.
Because of this, the Fed prioritizes PCE over CPI when making monetary policy decisions.

2. Focus on Core PCE

Headline PCE can be volatile due to fluctuations in food and energy prices.
The Fed pays closer attention to Core PCE to gauge long-term inflation trends.
Investors should prioritize Core PCE when analyzing market movements.

3. Fed’s Policy Statements Matter

The market reaction is not solely based on PCE results—the Fed’s response is equally important.
Even if PCE meets expectations, Fed statements can significantly influence market movements.
Traders should monitor FOMC statements and speeches by Fed officials to understand potential rate policy shifts.

4. Release Time (Summer & Winter Time)

PCE data is released monthly by the Bureau of Economic Analysis (BEA), typically at the end of the month (between the 27th and 31st).

※ When the U.S. follows Daylight Saving Time (Summer Time), the Japan release time shifts one hour earlier.

5. Conclusion

PCE is the Fed’s most important inflation measure, with Core PCE being the primary focus.
If PCE exceeds expectations, rate hike expectations increase, strengthening the U.S. dollar but weighing on stocks.
If PCE falls below expectations, rate cut expectations rise, leading to dollar weakness and stock market gains.
Investors should track both PCE and Fed policy statements to anticipate market movements.
PCE is released at 8:30 AM (ET), which corresponds to 9:30 PM (JST) during Summer Time and 10:30 PM (JST) during Winter Time.