Our view is that inflation is nearing a cyclical peak, and we expect it to begin cooling off from here. We’re keeping an eye out for that inflection point, monitoring the various inflation survey measures (e.g., CPI, PCE, etc.), wage pressures, and more, all in their various main, core, and trimmed variations. Most of these are readily available and easy enough to track.
But if these measures have a weakness, it is in that they are backward-looking, shedding light on what happened over the prior time period. Take the Fed’s preferred inflation gauge: the Personal Consumption Expenditures (PCE) Price Index.
The report containing PCE inflation data comes out monthly and reflects data for the prior month. In other words, it shares insight on inflation often weeks after the period happened. There are other options.
Most of what investors think of in terms of inflation are survey-based, observable inflation measures. The bond market also presents various alternative gauges of inflation in what are known as market-based inflation measures. Understanding how those work and what insights they can provide first starts with the distinction between nominal and real rates.