Personal Consumption Expenditures (PCE)

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There are various tools to determine inflation level within a particular country. One of the indicators which is generally used is the Personal Consumption Expenditures (PCE). PCE are used by the Federal Reserve Bank to determine price changes from the consumer’s side when they spend money to buy goods and services excluding food and energy. This kind of calculation enables the government to view the inflation trend more clearly.

In the United States, the Personal Consumption Expenditures report is released by the Bureau of Economic Analysis of the Department of Commerce. This is a quite predictable report with a slight impact to the market. The PCE report is calculated using a chain base index which strictly follows the purchasing leaning of consumers by letting the goods and services included in the PCE basket to change as consumer preferences change.

Similar report released by the same Department is the Consumer Price Index (CPI). Even though this report has similarity with the PCE report in many respects, both are different in the type of index used. These important differences can lead to huge gap between CPI and PCE report. The PCE uses a chain index, which allows consumers’ changing expenditure due to prices into account, while the CPI report uses a fixed basket of goods with weightings that don’t modify over time.

In correlation with market trend, the PCE report has a significant impact. If the Personal Consumption Expenditures Index rises, it will strengthen the currency. On the contrary, if the PCE index falls down, it means the currency is getting weaker. This report will lead traders and investors to take a proper consideration upon the released report and make decision in their trading. Of course, don’t forget to put a combination of indicators to get a comprehensive picture of the market condition.

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