U.S. Core PCE (ex Food & Energy) — underlying inflation
Recent U.S. core PCE inflation data point to a regime of stable but persistent underlying inflation, with no clear evidence of either reacceleration or a decisive disinflationary break. The index continues to rise at a pace broadly consistent with its recent structural trend, while the annual profile has remained largely steady.
This behavior is particularly relevant given that core PCE is the Federal Reserve’s preferred measure of underlying inflation. Unlike CPI-based measures, core PCE incorporates evolving consumption patterns and places less weight on housing, offering a cleaner — though often slower-moving — signal of inflation persistence.
Recent data dynamics
Over the past several months, core PCE has exhibited consistent, moderate monthly increases, without sustained upside or downside surprises. Periods of slightly stronger growth have been followed by normalization, while softer months have not translated into a lasting downward shift.
Trend metrics reinforce this interpretation. The series is advancing close to its usual structural pace, and the annual trend has remained broadly unchanged. Importantly, no clear inflection point or regime shift stands out in the recent data.
Composition and persistence
Core PCE places greater emphasis on services consumption and captures consumer substitution effects more effectively than CPI-based measures. As a result, it tends to smooth short-term volatility and provide a more stable read on underlying inflation dynamics.
This structural feature helps explain the current pattern: inflation pressures are neither intensifying nor fading rapidly. Instead, persistence reflects gradual adjustment in service-sector pricing, wage-sensitive components, and broader cost structures that respond only slowly to monetary restraint.
Macro context and monetary policy
From a policy standpoint, the recent behavior of core PCE supports the Federal Reserve’s cautious and data-dependent stance. While progress has been made relative to the peak of the inflation cycle, the data do not yet provide strong evidence of a sustained convergence toward price stability.
Market expectations for policy easing coexist with this persistence. Core PCE’s steady trajectory implies that the Fed retains flexibility, but also that it lacks a compelling signal to move aggressively. In this context, patience remains consistent with the inflation data.
Downside scenario — clearer disinflation: A sequence of softer monthly readings and a gradual easing in service-price dynamics would signal a more convincing reduction in persistence, allowing for earlier or more confident policy easing.
Conclusion
Core PCE inflation currently reflects a regime of stability rather than transition. Underlying pressures are neither accelerating nor decisively easing, underscoring the durability of service-driven inflation dynamics.
For monetary policy, this implies that the dominant risk is not renewed inflationary stress, but rather insufficient progress toward sustained disinflation.