Personal Consumption Expenditures (PCE)

Who: Bureau of Economic Analysis of the Department of Commerce

When: Around the first business day of the month for two months prior

What: The Personal Consumption Expenditures (PCE) report is a component of the monthly Personal Income report. It is a measure of price changes in consumer goods and services. It consists of the actual and imputed expenditures of households and includes data pertaining to durables, non-durables, and services. It is basically a measure of goods and services targeted towards individuals and consumed by individuals.

There are two broad indexes of consumer prices in the United States: the Consumer Price Index (CPI) and the PCE index. They are similar in many respects, but there are some important differences which can lead to large gaps between CPI and PCE inflation rates at times. The PCE uses a chain index which takes into account consumers' changing consumption due to prices, while the CPI uses a fixed basket of goods with weightings that do not change over time.

Economists frequently focus on the Core rate, which excludes the volatile food and energy components.

Why: The PCE is the Fed's favorite inflation indicator and markets tend to be extremely sensitive to unexpected changes to the reported numbers. As inflation and expectations of future inflation rates change, the markets adjust interest rates to reflect those changes. The effect of these changes is seen across all markets, equities, bonds and mortgage backed securities. As a general rule, higher inflation is negative for bond markets.