There was an interesting twist regarding the PCE inflation data released last Friday, as the New York Federal Reserve rejected the view that PCE is cooling down year-on-year.

As early as April 2022, when the Federal Reserve's favored inflation indicator PCE surged year-on-year to its June 2022 high of 7.2%, researchers at the New York Fed proposed a new inflation indicator based on data from the PCE index but attempting to demonstrate the "persistence" of inflation. They achieve this by aggregating PCE components in different ways, which they call Multi Core Trend Inflation (MCT Inflation).

This idea may be to indicate that beneath the surface, inflation is not so bad, and it is not as persistent and is disappearing. For most of the time since the invention of MCT, MCT inflation has been much lower than core and overall PCE.

Now they have released the MCT for January. The PCE for January was released last Friday, and the media rushed to report that the year-on-year inflation data had slightly cooled down. It should be pointed out that after several months of relentless acceleration, monthly, 3-month, and 6-month growth rates all showed the most severe inflation since spring 2024. However, the huge base effect of the service industry cooled down the year-on-year growth of the service industry, thereby cooling down the core PCE and overall PCE.

So now for the MCT in January, it attempts to show the "sustainability" of inflation, using the same base data but with different divisions. After Powell himself abandoned the term 'temporary', 'sustainability' has become a huge concept.

The year-on-year growth rate of MCT in January increased from 2.63% in December last year to 2.86%, which is the largest increase since March 2024, mainly driven by "services other than housing", with less impact on "core commodities" (excluding food and energy commodities).

In other words, housing is no longer a driving factor for inflation, and price pressure has shifted to non housing services and core commodities.

Last Friday's data: The overall PCE dropped to+2.51%, and the core PCE dropped to 2.65%.