In the recently published GDP report, there are two fresh ways to measure inflation, and both suggest that the trend of slowing inflation is ongoing.
For the first time, the Commerce Department has included price indexes for PCE (Personal Consumption Expenditures) that exclude food, energy, and housing, as well as PCE services excluding energy and housing. The government decided to provide this data due to requests from data users. It’s essential because Federal Reserve officials, including Chair Jerome Powell, are closely monitoring inflation patterns in services not related to housing.
These new metrics give a clearer picture of inflation trends by excluding volatile components like food and energy. The focus is on understanding how prices are changing in areas that are less influenced by immediate supply and demand factors, providing valuable insights for policymakers at the Federal Reserve.
In the latest GDP report, we have some fresh insights into inflation trends, particularly focusing on core inflation, which excludes the volatile components of food, energy, and housing. This gives us a clearer view of how prices are changing in areas less influenced by immediate supply and demand.
The PCE (Personal Consumption Expenditures) price index, excluding food, energy, and housing, slowed down from a 4.1% rate in the first quarter to 3% in the second quarter. Similarly, PCE services, excluding energy and housing, also experienced a slowdown from 5.1% to 3.5%. Core measures like these are vital because they often serve as better predictors of future inflation compared to the headline measures.
Federal Reserve Chair Jerome Powell has emphasized the significance of core inflation. He breaks it down into three categories: goods, housing services, and non-housing services. Looking at the data for June, July, and August, there were notable declines in core inflation, primarily within the goods sector. There was also a slight dip in non-housing services.
These changes in core inflation are important indicators for the Federal Reserve when making monetary policy decisions. They help Fed officials understand how inflation trends are evolving and whether they need to adjust interest rates to maintain economic stability.
In the broader context, the core PCE price index for the second quarter remained at 3.7%, which was consistent with previous estimates. This data highlights the importance of monitoring core inflation trends, as they provide valuable insights into the overall health of the economy and guide policymakers in their efforts to ensure price stability and sustainable economic growth.
