After the Annual PCE Revisions, U.S. Disinflation Needs Reassessing

On the evening of September 30, Beijing time, the U.S. personal consumption expenditures (PCE) price index for August was released. Annual PCE inflation was 3.4%, down 0.3 percentage points from the previously reported July reading of 3.7%.

Looking only at those two initially reported figures, the conclusion seems straightforward: U.S. inflation continued to cool.

This time, however, the headline readings are not enough to support that judgment. Alongside the PCE release, the U.S. Bureau of Economic Analysis (BEA), part of the Department of Commerce, completed its annual data revisions. Those revisions make the inflation report more complicated to interpret.

An apparent decline that still needs confirmation

Following the annual revisions, July's annual PCE inflation rate was revised down from the previously reported 3.7% to 3.36%. Compared with that revised July figure, the latest August reading was slightly higher, although the difference was limited. Comparing the data on a consistent basis suggests that further disinflation has yet to be established.

Why revise the data annually?

Economic statistics are not finalized in a single step. When figures are first released, statistical agencies must estimate them using the information available at that point. As additional business data, survey information, and underlying source material become available, the BEA regularly revises historical figures to improve the accuracy of the entire series.

Annual revisions therefore do not mean the earlier data were wrong. They mean the statistical system has updated its account of the past as more information has become available.

Core PCE tells the same story: no further cooling

Core PCE followed a similar pattern. July's initially reported annual rate was 3.3%; after revision, it fell to 2.98%. The latest August reading was 3.01%, again showing only a limited change.

The month-on-month figures, which measure the change in prices over a single month, tell a similar story:

- Headline PCE rose 0.3% in August, above July's revised increase of 0.05%.

- Core PCE rose 0.25% in August, above July's revised increase of 0.13%.

On a consistent, revised basis, neither the annual nor the monthly readings show inflation cooling further.

Subsequent releases will have to confirm further disinflation

This PCE report did not provide evidence that inflation was continuing to fall. On the revised figures, inflation was broadly flat between July and August, and monthly price pressures showed no easing.

One month's data are not enough to establish a trend, however. Several upcoming releases deserve attention:

- September nonfarm payrolls on October 2, to assess labour-market conditions.

- September CPI on October 14, to examine consumer price pressures.

- September PCE on October 29, to check the pace of disinflation.

Macroeconomic analysis should look beyond any single monthly reading and focus on whether a trend has become established. Both monthly fluctuations and statistical revisions need to be viewed over a longer horizon. A single release is not enough to justify a firm conclusion.