{"id":435531,"date":"2026-08-06T06:22:33","date_gmt":"2026-08-05T23:22:33","guid":{"rendered":"https:\/\/www.swingfish.trade\/blog\/market-news\/pimco-says-ai-linked-categories-are-distorting-core-pce-readings-435531\/"},"modified":"2026-08-06T06:22:33","modified_gmt":"2026-08-05T23:22:33","slug":"pimco-says-ai-linked-categories-are-distorting-core-pce-readings","status":"publish","type":"post","link":"https:\/\/www.swingfish.trade\/blog\/market-news\/pimco-says-ai-linked-categories-are-distorting-core-pce-readings-435531\/","title":{"rendered":"PIMCO says AI-linked categories are distorting core PCE readings"},"content":{"rendered":"<div>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">PIMCO&#8217;s analysis pushes back against the idea that recent core PCE strength should trigger a more hawkish Fed response, which if it gains traction among investors could support rate cut expectations and pressure front end yields lower relative to a scenario where markets take the headline core PCE print at face value. The firm&#8217;s argument that AI-linked distortions in portfolio management fees and software pricing are inflating the core PCE figure adds a technical but market relevant nuance, particularly given the BEA&#8217;s planned methodological changes expected to lower reported PCE inflation by 0.2 to 0.3 percentage points. If PIMCO&#8217;s read proves correct and underlying inflation stays in the &#8220;two-point-something zone,&#8221; it reinforces a base case for policy staying on hold rather than tightening further, which would be a relief for risk assets broadly. Conversely, any signs that the skew in price distributions is beginning to broaden beyond AI-related categories would undercut the noise thesis and raise the odds of a more hawkish Fed response.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">&#8212;<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">Earlier:<\/p>\n<ul>\n<li><a href=\"https:\/\/investinglive.com\/central-banks\/fed-s-cook\" target=\"_blank\" rel=\"follow\">Fed&#8217;s Cook: Fed running out of room for disnflation to return<\/a><\/li>\n<\/ul>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">\nPIMCO argues the recent jump in core PCE inflation is mostly a statistical quirk tied to AI-driven categories, not a sign that price pressures are broadening.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">Summary:<\/p>\n<ul dir=\"ltr\" class=\"[li_&amp;]:mb-0 [li_&amp;]:mt-1 [li_&amp;]:gap-1 [&amp;:not(:last-child)_ul]:pb-1 [&amp;:not(:last-child)_ol]:pb-1 list-disc flex flex-col gap-1 pl-8 mb-3 print:block print:space-y-1\">\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">PIMCO estimates underlying US inflation is running between 2.2% and 2.8% through June, well below the 3.3% core PCE rate the Fed uses to track its target<\/li>\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">The firm says core PCE currently looks like an outlier relative to other underlying inflation measures, most of which sit in a &#8220;two-point-something zone&#8221;<\/li>\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">PIMCO attributes much of the gap between core PCE and core CPI to two categories, portfolio management fees and software pricing, both distorted by AI-related developments including rising asset values and rapid tech price changes<\/li>\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">The firm notes the BEA has already flagged methodological changes expected to lower reported PCE inflation by roughly 0.2 to 0.3 percentage points<\/li>\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">PIMCO&#8217;s base case is that core inflation cools over time and the Fed keeps its policy rate on hold this year<\/li>\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">The note points to unit labor cost inflation running near the Fed&#8217;s 2% target as another reason to expect eventual convergence<\/li>\n<\/ul>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">\nInvestment giant <a href=\"https:\/\/www.pimco.com\/us\/en\/insights\/underlying-inflation-gauges-trimming-noise-or-trimming-signal?utm_source=x&amp;utm_medium=organic_social&amp;utm_campaign=yq26q3-lmamer-cpmarket_outlook_insights-spmacro_signposts-moawareness-isna&amp;utm_content=cnmacro_signposts_august_5th_x\" rel=\"follow\">PIMCO <\/a>says the recent acceleration in one of the Federal Reserve&#8217;s key inflation gauges is likely more statistical noise than a genuine signal of broadening price pressures, arguing that underlying US inflation remains firmly contained even as headline core PCE readings run hotter than other measures suggest.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">In a note addressing the debate sparked in part by Fed Chair Kevin Warsh&#8217;s repeated description of standard inflation gauges as imperfect, PIMCO said its analysis of a range of underlying inflation measures puts the true trend somewhere between 2.2% and 2.8% through June, notably below the 3.3% core Personal Consumption Expenditures rate the Fed uses as its primary yardstick. The firm said that gap makes the recent strength in core PCE something of an outlier relative to other gauges, most of which continue to sit in what PIMCO called the &#8220;two-point-something zone.&#8221;<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">The note walked through how underlying inflation measures, such as trimmed mean and median gauges long used by regional Federal Reserve banks, work by stripping out unusually large and idiosyncratic price moves to better isolate persistent trends. PIMCO cautioned these measures are not infallible, noting they can be systematically slow to catch genuine turning points when price shocks are concentrated in one direction, as was the case during the 2021 to 2022 inflation surge when trimmed mean gauges initially understated the risk posed by the &#8220;transitory inflation&#8221; episode.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">This time, PIMCO argued the situation looks different. The firm said the gap between core PCE and core CPI can largely be explained by two categories, portfolio management services and software related pricing, both of which have been heavily influenced by developments tied to artificial intelligence, including strong equity market performance lifting asset based management fees and rapid price changes in certain technology inputs. PIMCO said both categories arguably overstate genuine inflationary pressure, noting that current software price measures do not fully capture quality improvements from cloud services and AI functionality, while portfolio management fees calculated as a percentage of assets under management have actually been declining even as the higher dollar value of assets under management shows up as inflation in the data. The firm noted the Bureau of Economic Analysis has already signalled methodological changes expected to lower reported year over year PCE inflation by roughly 0.2 to 0.3 percentage points.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">PIMCO also pointed out that, unlike in 2022 when both core CPI and core PCE accelerated together ahead of their respective underlying measures, the current acceleration is more specific to PCE data, with core CPI not showing the same shift in the underlying distribution of price changes. That divergence, the firm said, supports the view that the recent core PCE strength reflects category specific distortions rather than a broad based pickup in inflation.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">Looking ahead, PIMCO said it expects core inflation to cool over time as pressures from tariffs, energy costs and AI related components fade, and that measures of core inflation tend to converge with labour costs over time. The firm noted that unit labour cost inflation is currently running in line with the Fed&#8217;s 2% target, reinforcing its base case that the central bank will keep its policy rate on hold this year.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">PIMCO concluded that while the range of underlying inflation measures all still sit slightly above the Fed&#8217;s 2% target, the absence of a meaningful shift in the broader trend, despite a string of shocks over the past two years, reduces the urgency for policymakers to move quickly on rates, even as the intensified scrutiny of these measures reflects positively on the central bank&#8217;s commitment to managing inflation risk carefully.\u00a0<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">\n<p>                            This article was written by Eamonn Sheridan at investinglive.com.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>PIMCO&#8217;s analysis pushes back against the idea that recent core PCE strength should trigger a more hawkish Fed response, which if it gains traction among investors could support rate cut expectations and&hellip;<\/p>\n","protected":false},"author":216,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[86],"tags":[],"class_list":["post-435531","post","type-post","status-publish","format-standard","hentry","category-market-news"],"_links":{"self":[{"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/posts\/435531","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/users\/216"}],"replies":[{"embeddable":true,"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/comments?post=435531"}],"version-history":[{"count":0,"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/posts\/435531\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/media?parent=435531"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/categories?post=435531"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/tags?post=435531"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}