US personal consumption expenditure preview

Personal consumption, income data along with PCE price index would be released from 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.
   
•  Increase in income also improves sentiment and purchasing power of consumers. According to FED’s latest statement household income is rising at 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 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% y/y in mid-2014 to as low as 0.1% 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% and 1% in February.

• Core PCE price index also slowed down as lower energy prices might be feeding into prices and spending remains subdued. In February, prices grew 1.7% y/y.
   
• According to FED real income is growing at solid rate. In February income grew 0.2%.
   
• Compared to income, spending has remained subdued. A recovery here is necessary to boost inflation.

Expectation today –

• Personal income is expected to grow by 0.3% and spending at 0.2%.

Market impact –

• Focus will be on PCE price index to assess the impact of recent recovery and higher commodities price. Spending data will also be vital to watch out.

Dollar has remained worst performer for past few weeks, and currently trading at 93.38, down -5.3% YTD.