Payden & Rygel: Inflation in US personal consumption measures
Data released this week showed headline Personal Consumption Expenditures (PCE) inflation jumped 0.4% in May. Excluding food and energy, core PCE rose 3.4% year over year.
But is core the right measure? Historically, food and energy were the noisiest components, so excluding them made sense. Yet other categories can be just as volatile. For example computer software surged earlier in the years, while financial and telecommunications services jumped in May.
A better approach trims large monthly moves across all components, not just food and energy. In fact the Dallas Fed's trimmed-mean PCE measured 2.4% in May, much more moderate than core. That said, the Dallas Fed trims inflation asymmetrically and may understate true inflation pressures.
To offset, we constructed a symmetric trim, which still shows lower pressure than the core. The bottom line: true inflation likely lies between the core and trimmed-mean measures. It's probably not as worrisome as headlines suggest, but not as benign as asymmetric trimmed-mean implies.
