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 quicker to reflect real-time pricing fluctuations. In the last report, through December, PCE inflation was at 2.6% year over year; by comparison, the latest CPI report, through December, had inflation at 3.0%. 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 lower readings for January: 2.5% for the headline number and 2.7% for the core reading, as lingering inflation in certain sticky-priced services, including transportation and housing, 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 then. We track 20 inflation measures on a monthly basis. On average, they are indicating that prices are rising at a 3.2% rate year over year, up from 2.9% a month ago. We note the numbers are volatile and 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 (from the GDP report), the five-year forward inflation expectation rate, the 10-year TIPs Break-even Interest Rate and the Fe
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