Sticky Supercore

When it comes to inflation, we know that the Bureau of Economic Analysis releases two inflation reports, the CPI and PCE, each month. The two differ because they each measure a distinct basket of goods (you can read about the technicals of each here).

These further break down into core (which omits volatile energy and food pricing) and headline inflation, which includes it. So we have headline CPI, core CPI, headline PCE, and core PCE. There are pros and cons to each, but the Fed states its inflation goal in terms of core inflation - specifically core PCE.

There are three (major) components to core PCE: core goods, housing, and core services ex-housing.

The last of which, core services ex-housing (also known as "Supercore" ), comprises 55% of the core PCE inflation index and, in the words of Powell himself, "may be the most important category for understanding the future evolution of core inflation. Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category."

While today's core CPI may have come in as expected, core services ex housing rose for the fifth consecutive month. You cannot think seriously about rate cuts, which would likely rekindle economic activity and spur additional inflation, without consideration for Powell's metric of choice.