Headline PCE Diverges from Core in July Release Amid Energy Pressure

What the July PCE Release Revealed

The argument above is that headline and core measures can diverge, and that the divergence gets widest precisely when energy is driving the pressure.

The day after this was written, the July PCE release landed and did exactly that. Headline PCE came in at 3.7%. Core PCE at 3.3%, against expectations of 3.6%. And as the Financial Times noted, headline PCE did not follow CPI lower in July as it had been expected to.

Two measures of the same inflation, in the same release, pointing in different directions. Headline accelerated because headline counts energy. Core came in as expected because core does not.

Why Did Headline PCE Rise While Core Came In as Expected?

Because headline includes energy and core excludes it. In a month where an energy shock is pushing costs through the economy, the two measures separate — headline captures the pressure, core filters it out.

Both numbers are correct. They describe different problems.

It is also worth noting what happened to the reading of that release over the course of the session. In the first hour it was widely described as in line to slightly hotter. By the close it was being called hot, the dollar had posted its largest daily gain in three weeks, and expectations of a September increase had firmed.

Same print. Two readings. Six hours apart.

Which is a reminder that the number itself is only half the information. The other half is which measure the market decides to weight, and that is not always settled at the moment of release.