CPI AND PCE INFLATION: WHICH OF THE FED'S CONCERNS

Coimpaper reported that both CPI and PCE are indicators of inflation in the United States, but they are calculated differently. The official Fed target is PCE inflation, not CPI, and the long-term target is 2 per cent inflation. Although CPI usually triggers a greater market response, it is early that investors have faster access to key information on consumer inflation. The latest data show an annual increase of 3.4 per cent for the CPI in July, 2.5 per cent for the core, 3.7 per cent for the PCE and 3.3 per cent for the core. This suggests that investors should not see these two indicators as substitutes. CPI is usually published prior to PCE and traders use CPI data to reassess interest rate expectations, national debt yields and United States dollars. Lower CPI reporting may support equities and encrypted currencies and reduce expectations of tight monetary policy, while higher CPIs may be counterproductive。