BEA PCE Methodology Changes to Cut Core Inflation by 0.2 Points
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- BEA announced methodology changes to PCE price calculations covering portfolio management and investment advice services, computer software and accessories, and legal services, with revisions set for Sept. 30.
- Core PCE inflation was 3.4% for the 12 months ended in May and has exceeded the Fed's 2% target every month since March 2021, with analysts estimating the methodology changes will trim readings by approximately 0.2 percentage points.
- Stephen Miran, former Fed governor, explained the portfolio management measure conflates quantity and price — a fixed 1% fee on a portfolio that rises 20% counts as a 20% price increase; he and Fed economists Alessandro Barbarino and Anthony M. Diercks published a May paper on software and accessories measurement issues.
- JPMorgan economist Abiel Reinhart quipped that "Grand Theft Auto VI may yet have a chance to move the Treasury curve," highlighting how video game prices feed into the index.
- Brett Matsumoto's nomination to lead the BLS is pending in the Senate after Trump fired the previous commissioner over a weak jobs report and his original nominee was widely criticized as underqualified.
- Employ America's Vikas Patel urged the BEA to "act with more transparency around timing, weights, and historical revisions," citing "growing mistrust around official data."
Why it matters: The Fed's preferred inflation gauge is getting a methodological revision that analysts estimate will shave roughly 0.2 percentage points off core PCE. That timing — alongside Trump's pressure for rate cuts and last year's BLS firing — gives critics fresh ammunition, even though Fed researchers say the underlying measurement flaws are real.
