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The method for calculating the "personal consumption expenditures" (PCE), a key gauge used in the U.S. Federal Reserve's interest rate decisions, is set to change. Experts expect the shift to lower the price index. With U.S. President Donald Trump having pressed the Fed to cut rates, attention is focused on the impact of the move.
According to Axios on the 6th (local time), the U.S. Bureau of Economic Analysis (BEA), which compiles the PCE, recently announced changes to the calculation methods for three subcategories. The affected items are the pricing methods for △portfolio management and investment advisory services △computer software and peripheral equipment △legal services.
The change will be reflected starting with the August PCE, to be released on September 30. The BEA also plans to recalculate and release monthly and quarterly PCE data for the past five years under the new standard to minimize distortions caused by the methodological change.
Earlier, Fed Chair Kevin Warsh proposed the "trimmed mean PCE" as a new indicator. The trimmed mean PCE is calculated by removing a certain proportion of highly volatile top and bottom items and then averaging the remaining items. It is a gauge that filters out "outliers" to identify underlying price trends. Warsh said he prefers this price gauge to the core PCE, adding that "what matters is not geopolitical shocks but underlying inflation."
Experts forecast that the change will lower the core PCE by about 0.2 percentage point. The core PCE on a 12-month basis through May this year stood at 3.4%, far above the Fed's 2% target.
Meanwhile, the U.S. Commerce Department announced on the 7th that the trade balance in May posted a deficit of $77.6 billion. That marks a 38.8% increase from the previous month ($55.9 billion). Exports for the month were $317.7 billion, down 3.2% from the prior month, while imports rose 3.3% to $395.3 billion. Over the past month, the U.S. recorded a $106.5 billion deficit in goods trade and a $28.9 billion surplus in services trade.
