PCE

Methodology changes to PCE are coming right as the central bank makes critical decisions about interest rates.

In a recent speech at the New York Association for Business Economics, Fed Board Governor Christopher Waller spoke about the importance of “anchoring” inflation expectations.

Consumers now expect prices to rise 4.8% over the next year, up from 3.4% in February, and businesses and bond markets are signaling similar expectations.

Prices rose, and consumers managed to keep up. It’s been the status quo for a while now.

Two inflation reports drop this week, but neither captures the full picture of what's happening to prices in real time. The gap comes down to a trade-off economists know well: speed versus comprehensiveness.

The Bureau of Labor Statistics usually collects data in real time. So it may not be able to capture October prices or jobs data that was missed during the shutdown.

Measuring inflation without government data is difficult right now, but there other indicators of where prices are and where they are headed.

New data from the Bureau of Economic Analysis shows as prices go up, people are continuing to spend more money than they earn and are also saving less.

The price of oranges, for example, has increased by 26% since 2019 due to rising labor costs, lingering supply chain issues, and climate change. 

They’re backward-looking indicators, but economists can’t know where we are unless they know where we’ve been.