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 is changed more frequently and it is thus quicker to reflect the impact of real-time pricing fluctuations. In the most recent report, through September, PCE inflation was reported at 2.1% year over year (by comparison, the latest CPI report, through October, had inflation at 2.6%). Core PCE, which removes volatile food and energy prices, rose at a rate of 2.7% in the latest month. Our PCE forecasts call for 2.5% for the headline number and 2.8% for the core reading, as lingering inflation in services remains a challenge for the Fed as it makes progress toward its 2% goal. 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 2.3% rate year over year, up from 2.0% a month ago. We note the numbers are volatile and are distorted somewhat by swings within the volatile Producer Price Inflation report. Focusing on core inflation — which we obtain by averaging Core CPI, market-ba