Summary
The Federal Reserve’s favorite inflation indicator, the PCE Price Index, will be released by the BEA tomorrow morning. The PCE index differs from the better-known consumer price index (CPI) because its composition changes more often and therefore reflects the impact of real-time price fluctuations more quickly. In the most recent report, through September, PCE inflation was 2.1% year-over-year (by comparison, in the last CPI report, through October, inflation was 2.6%). Core PCE, which strips out volatile food and energy prices, rose 2.7% last month. Our PCE forecasts call for 2.5% for the headline rate and 2.8% for the core rate, as persistent inflation in the services sector remains a challenge for the Fed as it makes progress toward its 2% target. Overall, inflation in this cycle peaked in the summer of 2022 and has been on a fairly consistent downward trend since then. We monitor twenty inflation measures every month. On average, they indicate that prices are rising 2.3% year over year, compared to 2.0% a month ago. We note that the numbers are volatile and somewhat distorted by fluctuations in the volatile producer price inflation report. We focus on core inflation – which we obtain by averaging the core CPI, market inflation
