Summary
The Fed’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 as its composition is changed more frequently and it is quicker to reflect real-time pricing fluctuations. In the January report, PCE inflation grew 2.5% year over year. The latest CPI report (February) had inflation rising 2.8%. Core PCE, which removes volatile food and energy prices, rose at a rate of 2.6% in the latest month. Our PCE forecasts call for steady-to-lower readings for February: 2.4% for the headline number and for 2.6% for the core reading, as lingering inflation in certain sticky-priced services remains a challenge. Overall, inflation in this cycle peaked in summer 2022 and has been on a fairly consistent downward trek since then. We track 20 inflation measures on a monthly basis. On average, they are indicating that prices are rising at a 3.15% rate year over year, essentially flat with a month ago. The numbers are volatile and are distorted by swings within the volatile Producer Price Inflation report. Focusing on core inflation – which we obtain by averaging Core CPI, market-based PCE Ex-Food & Energy, the five-year forward inflation expectation rate, the 10-year TIPs Break-even Interest Rate, and the core PCE Price Index – our reading is 2.60%, lower by five basis poi
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