Relying on the statistics bureau to cut inflation? The U.S. revises PCE calculation method, May core inflation expected to drop by 13 basis points.

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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 raising actual personal consumption expenditures and productivity indicators.

According to estimates by Bloomberg Economics, if calculated using the new method, the year-on-year increase in the core PCE for May will be reduced by 13 basis points. Once all adjustments to the statistical framework by the BEA are fully implemented, the core PCE inflation reading should no longer be as significantly overstated as it is now.

The adjustment will also revise up actual personal consumption expenditures. It is estimated that the year-on-year decline in real spending for May was 1.6%, but would turn into a 4.8% increase under the new calculation method. This change is expected to boost 2025 GDP growth by 2 basis points, and lift the quarter-on-quarter annualized GDP growth rate in the first quarter of 2026 by 9 basis points.

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

Adjusting Portfolio Management Fee Calculation, Lowering Core PCE

The BEA announced that starting in September, it will use the Bureau of Labor Statistics’ “portfolio management and investment advice industry quantity extrapolation method based on Current Employment Statistics (CES)” to replace the previously used BLS producer price index (PPI) deflator method for portfolio management and investment advice services. This revision will cover historical data since 2021.

The new method will use total work hours—calculated as the number of employees times average hours worked—as a new measure of real expenditures, and then combine this with nominal spending data to estimate the PCE price index.

In May, portfolio management fees rose 21.6% year-on-year, contributing 37 basis points to core PCE. After the adjustment with the new calculation method, the year-on-year growth rate of these fees will drop to 14.3%, and their contribution to core PCE will narrow to 24 basis points.

In recent months, sharp increases in portfolio management fees have been one of the main reasons for the abnormally large gap between core PCE inflation and core CPI inflation. As the Fed’s preferred core inflation indicator, core PCE has continued to exceed core CPI.

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