Core PCE Inflation Slows in August

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The BEA's Personal Income and Outlays report revealed inflation slowed in August. Core PCE, the Fed's favored measure of inflation, was up 0.1% from July and slowed to 3.9% year-over-year, the lowest reading in over two years but still above the Fed's 2% target rate. The latest headline PCE price index was up 0.4% month-over-month (MoM) and rose to 3.5% year-over-year (YoY).

PCE Price Index

Personal consumption expenditures (PCE) measures and tracks changes for all domestic personal consumption. Core PCE measures the changes in personal consumption less food and energy, making it less volatile than the headline PCE. The PCE Price Index is calculated using PCE data and is a key way to measure changes in purchasing trends and inflation.

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The adjacent thumbnail gives us a close-up of the trend in YoY core PCE since January 2012. The first string of red data points highlights the 12 consecutive months when core PCE hovered in a narrow range around its interim low. The second string highlights the lower range from late 2014 through 2015. Core PCE shifted higher in 2016 with a decline in 2017, 2019, and 2020, with a major jump in 2022.

The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000, with a callout showing the last 12 months. Also included is an overlay of the core PCE (less food and energy) price index, which is Fed's preferred indicator for gauging inflation. The 2% benchmark is the Fed's conventional target for core inflation. Headline PCE accelerated from 3.4% in July to 3.5% in August. Core PCE slowed down from 4.3% in July to 3.9% in August. Both readings were consistent with their respective forecasts.

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

Another common measure of inflation is the Consumer Price Index. For an analysis on how these two inflationary measures stack up, check out our Two Measures of Inflation update.

Note: The data source is Table 9 in the Excel file available in the right-hand column of the BEA's report page.

This article was originally written by Doug Short. From 2016-2022, it was improved upon and updated by Jill Mislinski. Starting in January 2023, AP Charts pages will be maintained by Jennifer Nash at VettaFi | Advisor Perspectives