PCE PRICE INDEX

Definition

Another economic indicator useful for the forex trading community is the Personal Consumption Expenditure (PCE) Price Index.

This index is an inflation indicator that a savvy forex broker or trader will use to measure the average price increase for all domestic personal consumption in the US. It is similar to and uses the Consumer Price Index (CPI) but also includes data from the Producer Price Index and the Gross Domestic Products personal consumption expenditures category.

While the CPI uses only one set of expenditure weights over several years, the PCE relies on the Fisher Price Index, which utilizes expenditure data from the current and preceding period.

Instead of choosing a fixed base, the PCE also compares one quarter’s price to the last in order to compensate for consumers having made allowances for relative price changes and substituted goods that have rising prices for ones at a stable or falling level.

FX Trading Importance

Because the PCE takes substitution into account, it shows about a third less percent rise than the CPI and is considered by many forex brokers and traders to be the less volatile source of inflation indicators. The Core PCE Price Index is said to be even less volatile.