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 (CPI) because its composition is changed more frequently and it is quicker to reflect real-time pricing. In the most-recent report, through March, PCE inflation reportedly grew 2.3% year over year. The latest CPI report, through April, also had inflation rising 2.3%. Core PCE, which removes volatile food and energy prices, had risen at an annual rate of 2.6% in the latest month. Our PCE forecasts call for steady-to-lower readings for March: 2.2% for the headline number and for 2.6% for the core reading, as lingering inflation in sticky-priced services such as transportation and housing, remains a challenge for the Fed. 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 2.8% rate year over year, down 20 basis points compared to the revised month-ago level. The numbers are volatile and distorted somewhat 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