US PCE Nowcast – Rise in core inflation isn’t a signal for 2026

Our January PCE nowcast points to a slightly stronger monthly gain than seen in the CPI report, with headline PCE rising 0.3% and core PCE increasing 0.4%. This would leave headline inflation steady at 2.9% year-over-year while core inflation edges up to 3.1% from 3% in December. Despite the uptick, the report highlights key drivers behind price changes in January.

• Core services prices were hotter in January, supported by higher physician services costs and portfolio management fees, while softer core goods prices masked strength in computer software and accessories driven by AI demand.
• Our nowcast replicates the Bureau of Economic Analysis methodology using CPI, PPI, and import price data; since inception, the average absolute error has been 2bps for both headline and core PCE, with most tracking error concentrated in core services ex-housing.
• The delayed January BEA report, due March 13, is unlikely to shift Federal Reserve policy. With rates close to neutral and the labor market stabilizing, we expect the Fed to remain on hold until June.