Grapevine

The Fed's preferred inflation indicator is out Friday. Here's what to expect

Federal Reserve officials will get the latest look at their favorite inflation indicator Friday, a data snapshot that could influence the September rate decision even as policymakers appear to have their focus elsewhere these days.

The Commerce Department at 8:30 a.m. ET will release its personal consumption expenditures price index, a sprawling measure of what consumers are paying for a variety of goods and services as well as their spending preferences.

While the Fed uses a whole dashboard of indicators to measure inflation, the PCE index is its go-to data point and its sole forecasting tool when members release their quarterly projections. Policymakers especially hone in on the core PCE measure, which excludes food and energy, when making interest rate decisions.

The Fed prefers the PCE over the Labor Department's consumer price index as the former takes into account changes in consumer behavior such as substituting purchases, and is broader.

For the July reading, the Dow Jones consensus sees little change in recent trends — 0.2% monthly increases in both headline and core prices, and respective gains of 2.5% and 2.7% annually. At the core level, the 12-month forecast actually indicates a slight bump up from June, while the all-items measure is the same.

Should the readings roughly match the forecast, they should do little to dissuade Fed officials from following through with a much-anticipated interest rate cut at their Sept. 17-18 policy meeting.