Summary

• While the core Consumer Price Index (CPI) has looked relatively cool recently, core Personal Consumption Expenditures (PCE) inflation has risen sharply.
• What is signal versus noise? The most concerning driver of the CPI/PCE wedge (in which PCE inflation keeps ticking higher while CPI remains subdued) is the acceleration in price inflation for microchips and related products.
• A key question for the inflation outlook is whether these supply-side price shocks remain confined to specific categories or become the precondition for more persistent inflation pressures, which is what happened in 2022.

Something unusual is happening with U.S. inflation data. While the core Consumer Price Index (CPI) has looked relatively cool recently, core Personal Consumption Expenditures (PCE) inflation has risen sharply.

The incremental widening between the

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