US changes PCE method, lowers July core and headline by 30 bps

The latest PCE inflation print will be discounted by markets due to a US methodological change that alters how three categories are measured and revises data back to 2021: portfolio management and investment advice, computer software and accessories, and legal services.

Key changes:
- Portfolio management fees: Old method could treat higher asset values as higher “prices” when fees are asset-based. New method uses employment-based indicators to estimate service quantity, reducing inflation attributed to market-driven fee increases.
- Software: Now measured with a broader composite index.
- Legal services: Replaces an unpublished CPI-based series that had become unusually volatile.

Impact on inflation readings:
- Methodology change alone could reduce Core PCE by up to 20 basis points.
- Today’s release revised both headline and Core PCE for July down by 30 basis points.
- Not all of the 30 basis point decline reflects disinflation: a portion is due to the measurement change.