Personal consumption, income data along with PCE price index would be released from U.S. at 12:30 GMT.
Why it matters?
- Personal consumption and income data provide information on consumer sentiment. Consumers tend to spend more, should they perceive upcoming time to be favorable.
- An increase in income also improves sentiment and purchasing power of consumers. According to Fed, household income is rising at a solid rate.
- PCE price index or PCE deflator is FED’s preferred measure of inflation indicator. So this gauge is of extreme importance as FED will be closely monitoring inflation for subsequent hikes.
- Moreover, recently many FED policymakers have indicated that they are likely to vote for further rate hikes only after inflation edged up and be in line with medium-term outlook.
Past trends –
- PCE price index, largely due to oil price started falling from 1.8 percent y/y in mid-2014 to as low as 0.1 percent y/y in June 2015. It has remained in the low area since. It has somewhat recovered since November. This year in January, it was up 1.3 percent and 1 percent in February. It has hovered around 1 percent since.
- Core PCE price index also slowed down as lower energy prices might be feeding into prices and spending remains subdued. In April, it grew by 1.6 percent y/y.
- According to FED real income is growing at solid rate. In April income grew 0.4 percent.
- Compared to income, spending has remained subdued. A recovery here is necessary to boost inflation. However in April spending shot up by 1 percent.
Expectation today –
- Personal income is expected to grow by 0.3 percent and spending at 0.4 percent.
Market impact –
As of now market is focused on the potential fallouts from the United Kingdom’s referendum to opt out of the European Union. So it is not clear, how the market might react, especially since the next Fed hike is priced in deep next year.
Nevertheless, a rise in PCE price index will be an important factor in upcoming decisions.
The dollar index is currently trading at 95.9, down -0.16 percent so far today.
The material has been provided by InstaForex Company – www.instaforex.com