Summary
The Federal Reserve’s favorite inflation indicator, the PCE Price Index, will be released by the BEA this morning. The index differs from the better-known Consumer Price Index because its composition is changed more frequently and is thus quicker to reflect real-time pricing fluctuations. In the most recent report, through October, PCE inflation was reported at 2.3% year over year (by comparison, the latest CPI report, through November, had inflation at 2.7%). Core PCE, which removes volatile food and energy prices, rose at a rate of 2.8% in the latest month. Our PCE forecasts call for 2.5% for the headline number and for 2.9% for the core reading, as lingering inflation in certain services remains a challenge. Overall, inflation in this cycle peaked in summer 2022 and has been on a fairly consistent downward trek since that time. We track 20 inflation measures on a monthly basis. On average, they are indicating that prices are rising at a 2.4% rate year over year, up from 2.3% a month ago. We note the numbers are volatile and are distorted somewhat by swings within the Producer Price Inflation report. Focusing on core inflation — which we obtain by averaging Core CPI, market-based PCE Ex-Food &