THE FED PREFERS INFLATION INDICATORS

THE RECENTLY RELEASED PCE PRICE INDEX FOR THE UNITED STATES SHOWS THAT PCE INFLATION IS 3.7 PER CENT PER ANNUM, THE SAME AS IN JUNE. AFTER REMOVING THE MORE VOLATILE FOOD AND ENERGY CATEGORIES, THE CORE PCE INFLATION RATE WAS 3.3 PER CENT PER ANNUM, THE SAME AS IN JUNE. THE REPORT USES OTHER INFLATION DATA PREVIOUSLY PUBLISHED, SO PCE DATA ARE USUALLY CLOSE TO INVESTOR EXPECTATIONS. AT A TIME WHEN THE FED WAS FACING INFLATION PROBLEMS, THE REPORT FURTHER CLARIFIED THE INFLATION SITUATION. CHAIRMAN WALSH OF THE FED WILL MAKE AN IMPORTANT STATEMENT ON FRIDAY. THE UNITED STATES CPI DATA BROUGHT GOOD NEWS IN JULY: THE CORE CPI FELL TO A RELATIVELY MODERATE 2.5 PER CENT. HOWEVER, THE PCE INFLATION RATE HAS BEEN SIGNIFICANTLY STRONGER AS IT HAS VARIED IN WEIGHTS FOR DIFFERENT EXPENDITURE CATEGORIES. AT PRESENT, THERE IS MUCH UNCERTAINTY AS TO HOW WALSH VIEWS THE INCOMING INFLATION CHALLENGE. HE DID NOT INCLUDE HIS ECONOMIC PROJECTIONS IN THE QUARTERLY “POINT-LINE MAP”, WHICH SUMMARIZED FEDERAL RESERVE OFFICIALS' FORECASTS OF ECONOMIC AND INTEREST RATE PROSPECTS, AND HE DID NOT INDICATE WHETHER IT WAS POSSIBLE TO SUPPORT INTEREST-RATE INCREASES AT FUTURE MEETINGS, AN ISSUE THAT HAD LED TO DIFFERENCES WITHIN FEDERAL RESERVE OFFICIALS。