Personal Consumption Expenditures: Price Index for May

by: Doug Short

The monthly Personal Income and Outlays report was published Monday by the Bureau of Economic Analysis. The first chart shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation.

The Headline PCE price index rate has increased from last month's upwardly revised 2.24% (previously 2.19%) to 2.51%. The Core PCE index increased slightly from last month's upwardly revised 1.06% (previously 1.01%) to 1.21%.

I've calculated the index data to two decimal points to highlight the change more accurately. The mainstream media will report the annualized rate as 2.2% for headline and 1.0% for core.

It may seem trivial to focus such detail on numbers that will be revised again next month (the three previous months are subject to revision). But PCE is a key measure of inflation for the Federal Reserve, and the price increases in oil and gasoline, although now off their interim highs, puts consumer behavior in the spotlight.

A core PCE range of 1.75% to 2% is generally mentioned as the target for the Federal Reserve's price-stability mandate.

For a long-term perspective, here are the same two metrics spanning five decades.

Note: I use the data from Table 9 in the full release and tables available here.