PCE Revision Set to Clean Up Inflation Data Distortions
US inflation data is about to undergo a significant revision, but according to BNY Mellon's Americas Macro Strategist John Velis, this change will not alter the broader narrative. The Bureau of Economic Analysis will shift to a labor-based methodology, which will improve the accuracy of the Fed's preferred gauge without signaling real disinflation.
The recent gap between core PCE and CPI was largely due to a distortion caused by portfolio management fees, Velis argues. As assets under management increased, so did these fees, distorting the data. This revision should narrow the gap between PCE and CPI and make the Fed's preferred inflation gauge more reliable.
Velis emphasizes that any softer core PCE readings after the revision should be seen as a statistical correction rather than evidence of real disinflation. He advises treating such prints as 'less noise, not less inflation.'