Granted, methodology does not have a very sexy ring to it, but a return-making edge may be hidden in the details. In this untraditional edition of the ‘US Inflation Watch’ we take a closer look at the dis- and similarities between Powell & Co.’s go-to PCE and the more popularly known CPI. 

Our models do in fact point to a likely surprise to next week’s PCE.

Key takeaways up front:

• We see a visible uptick to the…

Cutting straight to the chase before delving into the statistical practices, we see a visible uptick in the January 26th PCE print when regressing on CPI but applying the indices’ weights from the PCE. 

Items with notable discrepancies in their relative importance between the two  – particularly housing (rents) and medical-/health care services – remain the driving forces behind the divergence i.e. the weight effect.

Chart 1: Upside to PCE when matching latest CPI with PCE-weights