DutchBook Partners' Stan Jonas alerted to me to an excellent article on "Alternative Guages of Underlying Inflation." The piece was written by Goldman Sachs' Ed McKelvey, and appears as the June 20 issue of the GS US Daily Financial Market Comment. If you have access to the publication, I highly recommend McElvoy's deconstruction of alternatives to the "excluding food and energy" variants of the Consumer Price Index and Personal Consumption Expenditure Index that are often used to assess underlying trends in inflation.
I don't have permission to quote from the article, so I won't, but it did remind me of one measure of "core" inflation I haven't really highlighted on this blog: the market-based PCE index. What it's all about, from the Bureau of Economic Analysis:
... BEA now prepares supplemental personal consumption expenditures (PCE) price and quantity indexes that are based on market transactions for which there are corresponding price measures.
... It excludes most imputed expenditures, such as services furnished without payment by financial intermediaries except life insurance carriers, but imputed space rent for owner-occupied nonfarm housing is included in the index. (We note that its inclusion improves comparability with the CPI. Owner's equivalent rent within the CPI is measured by reweighting the renter sample of market transactions.) It excludes expenses of nonprofit institutions serving households, most insurance purchases, gambling, margins on used light motor vehicles, and expenditures by U.S. residents working and traveling abroad. Household insurance premiums, which are deflated by the CPI for tenants’ and household insurance, are included in market-based PCE; medical and hospitalization and income loss insurance, expense of handling life insurance, motor vehicle insurance, and workers’ compensation are excluded.
So what story has the market-based PCE been telling of late? Here's the history, along with the traditional ex-food-and-energy measure and the Dallas Fed's trimmed PCE:
The good news is that the market-based PCE has not exhibited the recent uptick seen in the ex-food-and-energy and trimmed PCE variants. The bad news is that it remains at levels well above the other two alternatives. Overall, I'd say no comfort there, and it appears that everyone knows what that means.