Nowcasting US PCE inflation – Powell’s preferred metric

We are delighted to present CEIC's latest US inflation nowcasting datasets – including the Federal Reserve chairman's preferred barometer of US price levels.

Headline and core personal consumption expenditure (PCE) price indices track what Americans pay for goods and services. Jerome Powell especially prefers core PCE to the better-known consumer price index (CPI) due to PCE's wider coverage of expenditures and lower volatility.

Like all of CEIC's machine learning-driven nowcasts, the PCE inflation nowcast is updated weekly. This timeliness presents a significant advantage for CEIC's users, given official PCE data is released with a considerable time lag; the July figure will be published on August 30.

Our model suggests PCE inflation has been broadly stable since the June print. The next Fed meeting is September 17-18, and markets are predicting a rate cut; Powell may well judge that price pressures have subdued enough for a "pivot."

Our nowcast anticipates headline PCE inflation will come in at 2.6% for July (June: 2.5%) and core PCE inflation will reach 2.7% (June: 2.6%).

For August, our nowcast hints at a mild upward bias for inflation, particularly for Powell's favored "core" indicator, which excludes more volatile food and energy prices. As of the first three weeks of August, our model suggests headline PCE price index growth staying at 2.6% while core PCE inflation edges up to 2.8%.

CEIC's proprietary machine-learning nowcast model dynamically evaluates and adjusts relative importance of various inflation factors. As our final chart shows, for the most recent forecast in August, the model identified security yields and Fed banks' balance sheets as major influential predictors; they contribute more than 50% to the model. Other factors that fine-tune the model include breakeven inflation rates, labor market indicators, money markets and real-estate prices.

If you are a CEIC user, access the story here.