Two weeks ago I reported on inflation for December for the set of indexes that come out early in the month. This post reports on the important measure that the Federal Reserve uses for its decisions on interest rates. That measure was reported this morning. Inflation for Personal Consumption Expenditures less Food and Energy (PCE less F&E) points more clearly points to 2.0% annual inflation.
== PCE inflation ==
PCE less F&E is headed to 2% annual inflation. The last six months point to 1.9% annual inflation.
== CPI Core Inflation ==
I repeat the graph from two weeks ago for CPI Core inflation. This measure also excludes the volatile components of energy and food. The last seven months point to 3.2% inflation.
== Why the difference?
The calculation of PCE adjusts the components of the index to more recently reflect changes in consumer purchasing patterns: the index will reflect the effect of consumers buying more lower-cost chicken and less expensive beef, for example. Inflation as measured by PCE has been below Core inflation for most months in the last year.
Conclusion: The measure the Federal Reserve uses to judge inflation is more clearly on track for 2% annual inflation as compared to several other measures of inflation.