It looks like the individual price detail in the February PPI is not moving by much the informed consensus’ estimate of how the Core PCE Price Index will print for the same month. People seem to be mostly sticking with an estimated roughly 35 bps rise during February, with some minor tendency for some minor upward revisions in the prior months, which I will ignore for fear of introducing a computing error! Some analysts have revised up a few bps because of movement in medical services prices.
One thing I like to check for is whether these best guesses are distorted by an add from the portfolio management and advisory components of the financial services price index within the PCE. What the consensus factors in from that source is easy to estimate because the PPI detail makes the best guess super obvious as indicated in the chart below. Occasionally, the consensus will factor in a big swing there, in which case a particularly high or low consensus estimate of the Core PCE Price Index might be misleading. And to get around that, we would want to look at the implied best guess of the Market Price Only (MPO) Core PCE Price Index, which strips out these financial services prices and other sources of noise from non-market prices, which have been much less an issue in the past couple years, of a booming stock market.
This month, though, the financial services thing is a non-issue, just like last month. The best guess for portfolio management and advisory fees is that they will be up about 25 basis points, which is neither here nor there. Of course, portfolio management fees were occasionally an issue during 2024, mostly because the stock market was booming. So, I like to look at the MPO version of the Core PCE Price Index to strip out noise in any of the months that are relevant to the various inflation calculations, 3-month, 6-month, 12-month, etc. Accordingly, I need an estimate of the implied MPO Core for February. With financial services not being an issue this month, I will assume that the consensus assumes the typical 2 bps spread there, i.e., that the MPO version of the core will be up 33 basis points.
I will have more detail on this when I get a wider read of how the informed consensus is guessing the month, including the goods vs services split. Maybe I will raise my main inference from 35 bps to 37 or so. But for now, you may confidently view that 35 bps estimate for the standard Core as reflecting the notion that inflation was actually somewhat warm during February.
In closing, a gentle reminder. It is never a good idea to put much emphasis on the CPI, the Core CPI or even the upper level detail within the Core CPI. The Fed cares about the PCE Price Index and the mapping from the CPI to the PCE is very often very different from what a cursory look at the CPI, including its upper level detail, implies. State media seem particularly adamant about always doing this wrongly.
Source: BEA, Federal Reserve Bank of St. Louis (FRED)
Data are actual to January and equal to the fitted value for February.
