US personal consumption expenditure preview

Personal consumption, income data along with PCE price index would be released from the US 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’s latest statement, the 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, after US economy and its labor markets proved to be resilient enough, even with the threat of Brexit.

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. It grew by 0.8 percent y/y in July.

• Core PCE price index also slowed down as lower energy prices might be feeding into prices and spending remains subdued. In July, it grew by 1.6 percent y/y.
   
• According to Fed, real income is growing at a solid rate. In July income grew 0.4 percent.
   
• Compared to income, spending has remained subdued. A bounce here is necessary to boost inflation. However in July spending shot up by 0.3 percent.

Expectation today –

• Personal income and expenditure, both are expected to grow by 0.2 percent.

Market impact –

There may not be much of an impact from this data as the market is expecting the Fed to hike rates in the December meeting, however, if the PCE component comes really better than expected, like above 1.3 percent, then it is likely to push the dollar higher not only today but next week too.