PCE

What it Measures:

This indicator measures the average increase in prices for all U.S. domestic personal consumption. The index has a basis year of 2005 which equals 100 and is derived from the Gross Domestic Product’s largest component of personal consumption expenditures that excludes food and energy prices.

The indicator is an inflation measure which has been the Federal Reserve’s primary indicator for inflation since it changed from the Consumer Price Index in 2000.

What effect it has:

If the U.S. Core Personal Consumption Expenditure Price Index number comes out higher-than-expected, the value of the U.S. Dollar usually appreciates. On the other hand, a lower-than-expected number will tend to prompt the Dollar’s decline.

While Core CPI is one of the most widely-watched of all fundamental indicators, the Core Personal Consumption Expenditure Price Index can also influence equity prices and currency exchange rates especially due to its implications for interest-rate policy set by the Federal Reserve.

How often it is released:

Released monthly, typically 30 days after the end of the month reviewed.

Why it is important:

The PCE index is weighted by current period quantities which are variable. This is also known as "chain-type" weighting rather than weighting the index by a fixed basket of goods which is how CPI is calculated.

The index measures current personal consumption in today's prices which it then compares to the current personal consumption of its 2005 base year. By using this method, the index can give a clearer picture of overall inflationary trends in the economy and gives the Federal Reserve a basis upon which to adjust interest rates to manage inflation.