According to the Bureau of Economic Analysis' most recent report on personal incomes and expenses, consumer prices increased more than anticipated in August despite Federal Reserve efforts to slow price increases by raising interest rates. What is the Federal Reserve's favorite inflation gauge% decline 0. In July, the Personal Consumption Expenditures (PCE) Price Index for the BEA increased by 0.3% in August, exceeding the 0.1% forecast of economists.
What Is The Federal Reserve's Favorite Inflation Gauge?
The preferred inflation indicator used by the Fed is the PCE Price Index, whose increase would support the central bank's increasingly hawkish stance on tightening monetary policy and could result in another rate hike of at least 75 basis points at the next policy meeting in November.
The PCE Price Index rose each month, with broad-based rises in the prices of goods and services, such as housing and food, offsetting a reduction in energy prices. Compared to housing and utility costs, food prices increased by 0.8%. Medical expenses increased by 0.6%. From July, energy prices dropped 5.5%.
The index increased by 6.2% as compared to the same period in 2021, down from a 6.4% increase in July as energy costs decreased. Core PCE prices, which do not include the more volatile expenses of food and energy, increased by 0.6% in August and were up 4.9% year over year, picking up speed from July's 4.7% year over year increase.
Does Fed Focus On CPI Or PCE?
The Federal Reserve prefers the PCE Price Index as an indicator of inflation because it more closely mimics consumer spending patterns than the CPI. Personal incomes increased 0.3% last month, according to the report, demonstrating the job market's tenacity in the face of rising interest rates and recessionary concerns. The rise was the same as in July as laborers made steady progress. Spending increased by 0.4% as demand remained strong despite rising costs.
In November, when policymakers will again decide on the interest rate, the central bank will undoubtedly take these findings into consideration before its next policy meeting. The Fed's hawkish stance on tightening policy will probably be encouraged by rising prices and the continued count' labor market, which could result in another huge rate hike of 75 basis points.
Key Takeaways
What is the Federal Reserve's favorite inflation gauge? The short answer is the PCE Price Index. While higher rates might help contain inflation, they also make borrowing more expensive. The sister site of Investopedia tracks credit card information. The average interest rate last month was 21.64%, according to The Balance, the highest average annual percentage rate since the website started keeping track of them.
