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Latest inflation figures are good news 
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.
- PCE price index or PCE deflator is FED's preferred measure of inflation indicator. So this gauge is of extreme importance as FED's price stability mandate makes inflation is of higher priority as of now. Jobless rate is already near FED's longer term target level.
Past trends -
- PCE deflator had been gaining last year, however started going down in latter half of the year as oil price fell close to 50%. In April PCE price index grew just 0.1% YoY but core PCE deflator remained at 1.3% YoY. Second quarter saw improvement after slowdown in first quarter. However spending remains a concern since it is lagging income.
- Core PCE price index is also pointing to slowdown as lower energy prices might be feeding into prices and spending remains subdued. Core PCE grew by 1.2% y/y compared to 1.7% growth last year.
- Personal income growth has remained positive since 2013, however at subdued pace. Income has picked up somewhat this year as improvement in the economy might finally be adding pressure on wages. In April, personal income grew by 0.4%.
- Personal Spending has failed to grow at all in May.
Expectation today -
- Personal income and spending, both are expected to grow by 0.5% and 0.7% respectively.
- No growth is expected in PCE deflator.
Market impact -
Dollar index, which is value of dollar against basket of currencies is trading around 95.7-96 resistance area. Index is now at 95.24, down -0.04% for the day.
- Improved dockets with a rise in spending and core PCE deflator would further energize the dollar, however a sharp drop in spending or income would pose challenges.
- Any large selloffs in dollar is not expected. Short term treasury gains might be large over higher core PCE price increase.
