PCE Surpasses CPI in US Inflation Shift

Economist Diane Swonk has observed that the relationship between two key US inflation measures, the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE), has shifted. Historically, CPI tends to run hotter than PCE, but recently, the nonfood and non-energy measure of PCE has surpassed core CPI by a full percent.

The reversal is largely attributed to shelter costs, according to Swonk. This change in inflation dynamics may have implications for monetary policy, as the Federal Reserve targets PCE. Swonk's earlier warnings about routine and disruptive inflation shocks across various sectors are now gaining attention.