I was browsing around the economic calendar, and here is what I found written about the core personal consumption expenditure:
The Core Personal Consumption Expenditure released by the US Bureau of Economic Analysis is an average amount of money that consumers spend in a month. “Core” excludes seasonally volatile products such as food and energy in order to capture an accurate calculation of the expenditure. It is a significant indicator of inflation. A high reading is bullish for the USD, while a low reading is bearish.
I dont understand how is consumer spending a measure of inflation? Isnt a basket of prices (CPI / PPI) how inflation is measured? And now i keep finding everywhere how the Core Personal consumption expenditure is the what the Fed relies on to measure inflation?
Please enlighten me on this, thanks to everyone in advance!
If consumers have more money they spend more money. If they are spending more money they are buying more things. If they are buying more things then basic supply and demand does its thing. There is a demand for “things” and the price of “things” goes up. Inflation.
that was one of the best oversimplifications i have ever heard. thanko you!
Looking at it like this, CPI and PPI measure inflation, but once it has already happened, i.e. when its a bit too late. The Core personal consumption expenditure (CPCE?) is like a preemptive measure of inflation, it can tell you if its comming or not, nad how bad it might be - so it actually gives the fed enough time to react. Am I right?
In theory, yes. Holding inflation down AFTER inflation has occured is like closing the gate after all the cows have wandered off. You took the appropriate action but that action was taken too late to do any good.
A new survey claims that, due to the end of the payroll tax cuts, customers are spending less this year. The Tax Policy Center states the tax hike will take $700 from the typical American consumer this year. That could slow the already sluggish economic recovery. Source of article: personalmoneynetwork.com
That’s true. Some inflation is actually desired if it remains within in limits. The dangerous part when central banks interfere is that once inflation takes off you can’t contain it in a short period of time.