The Personal Income and Outlays report is issued by the Bureau of Economic Analysis (BEA) monthly. This report provides a measure of income received from wages and salaries, as well as investment income, as well as an estimate of personal consumption on goods and services, interest payments made on non-mortgage debt and certain transfer payments. This is an important economic indicator since personal income is one of the largest factors driving consumer demand. If people have more disposable income, they will generally spend more money or increase savings. In addition, the PCE Price Index (with food and energy removed) is considered by the Federal Reserve as its key measure of inflation.
The PCE consists of the actual and imputed expenditures of households and includes data pertaining to durable and non-durable goods and services. It is a benchmark indicator of the average price changes for personal consumption. Like the CPI, this price index includes the effect of goods substitution made by the consumer. In other words it includes the effect of consumers who have substituted from goods whose prices are rising to goods whose prices are stable or falling. Since PCE includes the immediate effect of substitution it generally increases at a slower level than the CPI.
According to the BEA, the August price index for PCE increased 1.5 percent from August a year ago as did the August PCE price index, excluding food and energy. This is in line with price increases over the last few months, and continues to reflect a moderating trend since the post-recession price surge seen in 2011.
Since the Federal Reserve uses the PCE deflator as its preferred measure of inflation this continued downward trend helps to ensure that the country will continue to experience very loose monetary policy in the near term. This bodes well for asset prices like those for housing, stocks and fine art, and suggests continued economic weakness in the coming year.
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