Will the rate of core PCE inflation be above 0.4% in January 2026?

The strongest argument for a YES resolution comes from the exceptionally hot January Producer Price Index report, which showed core PPI surging 0.8 percent month-over-month on February 27. Several components of the PPI feed directly into the Federal Reserve preferred PCE calculation. Capital Economics explicitly revised their January Core PCE estimate to 0.46 percent following this report, citing a stiff 0.59 percent increase in supercore services driven by legal services and portfolio management. Because the BEA reports the headline number to a single decimal place, an unrounded print of 0.45 percent or higher will round to 0.5 percent and trigger a YES resolution. Furthermore, January inflation data is notoriously susceptible to residual seasonality and start-of-year price resets. Research from the Federal Reserve Bank of Boston confirms that January inflation consistently runs higher than other months. We saw this exact dynamic play out last year, when the January 2025 Core PCE printed at 0.5 percent. With portfolio management fees jumping 1.5 percent in the PPI report and airline passenger services also rising, the structural components are in place for a repeat of last year seasonal spike.

The primary headwind for a YES resolution is the remarkably cool January Consumer Price Index report released on February 13. Core CPI printed at just 0.28 percent month-over-month, a significant deceleration from the 0.45 percent seen in January 2025. Because PCE is a composite of both CPI and PPI data, it is mathematically daunting for Core PCE to reach the 0.45 percent threshold required to round to 0.5 percent when the CPI inputs are dragging the average down so heavily. Historically, Core CPI tends to run 0.1 to 0.2 percentage points higher than Core PCE, making a scenario where PCE outpaces CPI by 0.18 percentage points highly anomalous. Consequently, the overwhelming consensus among major economic forecasters remains anchored at 0.4 percent. Institutions including Goldman Sachs, Oxford Economics, RBC Economics, and Continuum Economics have all published 0.4 percent estimates for January Core PCE, even after digesting the hot PPI data. RBC Economics specifically noted on March 6 that the PPI components most relevant for PCE, such as medical care services and domestic air transportation, did not post strong enough numbers to push the overall PCE index to 0.5 percent. Finally, the base rate for Core PCE prints above 0.4 percent is exceptionally low. Over the past 24 months, the index has only crossed this threshold once. The combination of a cool CPI print and a firmly anchored forecaster consensus suggests the market is over-indexing on the headline PPI shock rather than the weighted component math.