Summary
The Fed’s favorite inflation indicator, the PCE Price Index, will be released on Thursday morning. The index differs from the better-known Consumer Price Index (CPI) because its composition is changed more frequently and is quicker to reflect the impact of real-time pricing. In the most-recent report, PCE inflation reportedly increased at a 2.8% rate year over year through January. By comparison, the latest CPI report, through January had overall inflation rising 2.4%. Core PCE, which removes volatile food and energy prices, also had risen at an annual rate of 3.1%. Our PCE forecasts call for slightly lower readings for February: 2.7% for the headline number and 2.8% for the core reading. We think lingering inflation in certain sticky-priced services will combine with the skyrocketing price of oil to present a challenge for the Fed as it strives for its 2% goal. Inflation in this cycle peaked in summer 2022 and has been on a 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 2.68% rate year over year, up 20 basis points compared to the month-ago level. The numbers are volatile and can be distorted by swings within the Pr
