Personal consumption expenditure inflation
Personal consumption expenditure, or PCE, inflation is the measure of inflation that the Federal Reserve considers first. Along with full employment, stable prices are the Fed’s other goal. To achieve this, Fed has set a target for PCE inflation of 2%.
Inflation in line with consensus
The PCE price index rose by 0.3% month-over-month in May after having remained flat in April. May’s figures are in line with the consensus estimates. Headline PCE inflation, on the other hand, increased by 0.2% year-over-year in May.
The core PCE price index, which excludes food and energy, rose by 1.2% in May over last year, but it fell from 1.3% in April. The data for April and March were also revised slightly upward.
The above chart shows how far policymakers are from their goal. It’s important to note that it’s the PCE inflation and not the core PCE inflation that needs to trend toward 2%.
Inflation and gold
Any increase in this index means that the Fed is getting closer to an interest rate hike. Until the Fed progresses significantly toward this goal, it’s expected to let the inflation rate ride.
This will support gold prices (GLD) (IAU) and gold stocks including Goldcorp (GG), Kinross Gold (KGC), Hecla Mining (HL), and Silver Wheaton (SLW). It will also support the VanEck Vectors Gold Miners ETF (GDX) that invest in these gold stocks. Goldcorp and Kinross Gold form 10.6% of GDX’s holdings.
In the next part of this series, we’ll discuss the second part of the Fed’s mandate, maximum employment, and how it’s progressing.