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 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 0.9 percent y/y in June.
   
• Core PCE price index also slowed down as lower energy prices might be feeding into prices and spending remains subdued. In June, it grew by 1.6 percent y/y.
   
• According to FED real income is growing at a solid rate. In June income grew 0.2 percent.
   
• Compared to income, spending has remained subdued. A bounce here is necessary to boost inflation. However in June spending shot up by 0.4 percent.

Expectation today –

• Personal income is expected to grow by 0.4 percent and spending at 0.3 percent.

Market impact –

The focus has once again shifted to the possibility of a rate hike in September, so a stronger number is likely to provide a boost to the dollar and increase the odds of a hike next month. The dollar index is currently trading at 95.75, up 0.28 percent, so far today.