Inflation Indexes

There are myriad ways to measure inflation. Among the most common are CPI and PCE, the Fed’s preferred inflation measure. Regrettably, the gap between the two is unusually large. Historically core (which excludes food and energy) CPI has been 40bps higher than core PCE. Now, core CPI is 3.9% while core PCE is 2.8%, a gap of 110bps. This yawning gap is undoubtedly causing the Fed to delay rate cuts.