Rely on the statistics bureau to reduce inflation? The U.S. revises the PCE calculation method; core inflation in May is expected to fall by 13 basis points.

The U.S. Bureau of Economic Analysis (BEA) plans to adjust the calculation method for portfolio management fees in the Personal Consumption Expenditures (PCE) price index in September. This move will technically lower the core PCE inflation reading while revising up real personal consumption expenditures and productivity indicators.

According to Bloomberg Economics estimates, if the new method were applied, the year-over-year increase in core PCE for May would be reduced by 13 basis points. Once the BEA completes all subsequent statistical methodology adjustments, the core PCE inflation reading should no longer be as significantly elevated as it currently is.

The adjustment will also revise up real personal consumption expenditures. According to estimates, the year-over-year decline in real expenditures in May was 1.6%, but under the new method, it would turn into an increase of 4.8%. This change is expected to boost GDP growth in 2025 by 2 basis points, and by 9 basis points for the annualized quarter-over-quarter rate in the first quarter of 2026.

For the market, this adjustment means that the long-standing abnormal gap between the Federal Reserve's preferred inflation gauge and the Consumer Price Index (CPI) is expected to narrow, providing new reference coordinates for policy evaluation, while economic growth data will also be revised accordingly.

Adjustment to Portfolio Management Fee Calculation Lowers Core PCE

The BEA announced that starting in September, it will use the Bureau of Labor Statistics' "extrapolation method based on the Current Employment Statistics (CES) for the portfolio management and investment advisory industry," replacing the previously used BLS Producer Price Index (PPI) deflator method for portfolio management and investment advisory services. This revision will cover historical data back to 2021.

The new method will use total work hours—that is, employment multiplied by average hours worked—as a new indicator of real expenditures, and then combine it with nominal expenditure data to derive the PCE price index.

In May, portfolio management fees rose 21.6% year over year, contributing 37 basis points to core PCE. After adjustment under the new calculation method, the year-over-year increase in these fees would fall to 14.3%, correspondingly narrowing the contribution to core PCE to 24 basis points.

The sharp rise in portfolio management fees in recent months has been one of the main reasons for the unusually large gap between core PCE inflation and core CPI inflation. As the core inflation indicator favored by the Federal Reserve, core PCE inflation has consistently been higher than core CPI inflation.

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