Has the Federal Reserve’s new favorite category of inflation — sometimes called supercore inflation — slowed over the past month? Or was it stable?
The answer: probably the latter, but any confusion is justified.
The first thing to know is that the Fed has focused on so-called core services (or services outside of household utilities) other than housing, as defined by its preferred personal consumption spending index.
However, the PCE index is not released until the end of each month, so investors are trying to get a sense of the direction of inflation from the CPI report released on Tuesday.
One problem with looking at the CPI report is figuring out how to define housing. The CPI Index includes a large category called Accommodation. That sounds a lot like “housing,” and some market participants have actually pursued core CPI services without housing.
But it’s important to note that “accommodation” also includes “accommodation away from home” – a fairly significant category in its own right that is not included in the PCE definition of housing.
That distinction was particularly important in January, as prices for away-from-home accommodation have risen 1.2% since December, according to the Labor Department. As a result, monthly core services excluding accommodation inflation saw a notable decline, falling to 0.265% from 0.369% in December, according to BMO Capital Markets. However, using a narrower definition of housing that more closely matches the definition of the PCE index, non-housing core services were almost unchanged at 0.361% from 0.390% in December.
Even this number should be treated with caution, however, as there are differences between the PCE and CPI indices that go beyond their definition of housing. For now, investors will use what they have.