🚨 Is Inflation Stronger Than Investors Think?

A fascinating new analysis from the Dallas Fed suggests the answer may be: yes, but not as much as headline data implies.

Most investors focus on Core PCE, the Fed's preferred inflation gauge. But economists also track a measure called the Trimmed Mean PCE, which removes extreme price changes to better capture the underlying trend.

Here's the interesting part 👇

📊 The current Trimmed Mean methodology removes the top 31% and bottom 24% of price changes.

📊 A newly proposed version uses a more balanced approach, trimming 20% from the top and 19% from the bottom.

The result?

✅ Alternative Trimmed Mean Inflation: 2.6%

✅ Original Trimmed Mean Inflation: 2.2%

✅ Core PCE Inflation: 3.3%

The takeaway is that some of the recent increase in inflation appears to be noise and one-off distortions, but the underlying trend may still be running hotter than the original trimmed mean suggested.

For markets, this matters because:

• A 2.2% reading supports the "inflation is nearly solved" narrative 📉

• A 2.6% reading suggests the last mile back to 2% could be more challenging 📈

• Interest rate expectations, bond yields, and equity valuations are all highly sensitive to these differences

The implication? The inflation story may not be as bearish as the headline Core PCE data suggests, but it may not be as bullish as some investors hope either.

Sometimes the most important market insights come not from new data, but from how the data is measured.

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