What is the PCE Price Index?
The PCE Price Index is standard for Personal Consumption Expenditure and is just as crucial as the Consumer Price Index. Some economists argue that the PCE Expenditure is the most watched index by the Federal Reserve.
The PCE Price Index measures the prices of the goods and services that US consumers purchase. Some may ask, what is the difference between the CPI and PCE? The CPI measures a basket of goods and services which remains unchanged, whether customers are buying them or not. At the same time, the PCE Price Index monitors the prices of what customers are actually buying. Therefore it is a more accurate indication of true inflation.
Why is it important to the currency?
The higher the PCE Price Index, the higher the chances of high-interest rates and a hawkish central bank. As a result, a more expensive US Dollar. A lower PCE Price Index signals possibly lower interest rates which are negative for the Dollar. The effect is similar to the CPI, PPI and all inflation-related data.
Why is it important to the US Stocks?
A higher-than-expected PCE Price Index figure is positive for the Dollar and signals interest rate hikes. This is known to have a negative effect on stocks. A more expensive Dollar can affect the demand coming from foreign investors, who may be put off by the exchange rate. On the other hand, a lower-than-expected PCE Price Index may support the stock market as long as the inflation rate is not harmfully low.