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Core PCE, simple and corrected for distortions

Published on May 12, 2026

Gerard MacDonell

I still do not have a full sample of the wise guys who map the individual price detail in the CPI to a best guess of the Core PCE deflator. And separate from this, these estimates will change with the release of the PPI and IPI for April. But for now, it looks like the tentative consensus for the Core PCE might be a rise of 35 bps.

We know that these estimates are biased upward by about 4 to 5 bps, because the government statisticians are crowding two months of rent inflation into April. So, think of the real consensus as being a rise of 30 to 31 bps, which is still quite warm. Separately, we also know that financial services price inflation was being artificially inflated by the equity boom several months ago. And to control for that distortion, we might want to look at the Market Price Only (MPO) version of the Core PCE.

So, the chart below shows a picture of inflation with and without a correction for these two issues. The left panel just takes the data at face value with no adjustments. The right panel strips out the distortion (to the second derivative) from the financial services price issue and adjusts the level of the price index up by 5 bps for all months from October and November and then chops off 5 bps from the consensus gain for April. I believe that provides a more realistic depiction of what inflation has been doing, but with just one caveat: we need to add 20 bps to the inflation rate for all periods because a cost of stripping out non-market prices is the introduction of a minor bias downward in the inflation rate. (We want the signal, not the noise from non-market prices.)

I do this exercise because I think it is worth being fussy about these things. But in terms of the implications, as luck turns out, it does not matter. Both these approaches suggest a 12-month inflation rate ticking higher to a range of 3.35 to 3.4%. And in both cases, there is roughly the same pattern of acceleration. So, the inflation news so far this month does not look good. It continues to be concentrated on the goods side, but supercore services have also been accelerating. More on that later.

A graph of a graph of a graph

AI-generated content may be incorrect. — *Source: BEA, tentative FH inferences from small sample of informed consensus and calculations*
*Data are actual to March and estimated for April.*

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