United States: PCE Methodology tweaks seen as marginal – TD Securities

TD Securities economists Eli Nir and Oscar Munoz analyze upcoming BEA methodology changes to United States (US) Personal Consumption Expenditures (PCE) Price Index inflation for portfolio management, legal services, and computer software & accessories. They estimate May 2026 core PCE year-on-year inflation would be about 15bp lower, with the average monthly core PCE impact around -1bp over the past year, and see virtually no implications for Federal Reserve policy.

Core PCE seen slightly lower

"PCE inflation will be revised on September 30, alongside the August data release. At that time, the BEA will also publish methodology details that are not yet available. For now, only the broad outlines of the changes have been released, meaning any estimates of their impact rely on assumptions until the BEA provides further guidance."

"The impact should be minimal. Core PCE inflation in May 2026 would have likely been 15bp lower than the currently reported 3.4% y/y rate (see LHS chart below). Over the past 12 months, the average effect on m/m core inflation would have been just -1bp (see RHS chart below)."

"The implications for Fed policy are limited, as the affected categories account for just 3.67% of the PCE basket. Revisions should better align measured inflation with underlying spending patterns, and except for portfolio management services, the revised measures will continue to rely on CPI and PPI data."

"The information, opinions, commentaries, estimates and forecasts are as of the date of this report and subject to change without prior notification. We seek to update our materials as appropriate, but various regulations may prevent us from doing so. Macro commentaries are published at irregular intervals as appropriate in the author’s judgement."

"Historic information regarding performance is not indicative of future results and investors should understand that statements regarding future prospects may not be realized. All investments entail risk, including potential loss of principal invested. Performance analysis is based on certain assumptions, the results of which may vary significantly depending on the inputs assumed."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)