PCE core y/y
The Fed’s mandate is to keep inflation near 2% but which inflation measure? The Fed looks at both CPI and PCE but its preferred measure is PCE.
Today’s core CPI number rose 0.39% month over month but that won’t be repeated with the PCE report, according to a note from Morgan Stanley. In a note to clients after CPI, they say that adjustments in core PCE will mean it rose 0.29% m/m.
While that would push the six-month core CPI number to 2.2% from 1.9% (annualized), it’s not far off of the Fed’s target. It also may be a reason that Fed officials don’t overreact to today’s CPI data.