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Core PCE inflation may overstate underlying pressures

November 04, 2026

Core PCE inflation has remained stubbornly above the Fed’s 2% target, but the sources of that overshoot suggest underlying inflation pressures may be less persistent than the headline number implies. Much of the excess inflation can be traced to specific areas, including information-processing equipment, other core goods, healthcare services and airfares, rather than a broad-based cyclical acceleration. “In short, the overshoot appears to be more a function of idiosyncratic factors as opposed to a broad-based cyclical inflationary impulse,” says Garrett Melson, CFA®, Portfolio Strategist at Natixis Investment Managers Solutions. With wage growth and unit labor costs continuing to soften and inflation expectations largely well behaved, the underlying inflation picture may be more encouraging than recent core PCE readings suggest.

  • Continued shelter disinflation through mid-2027 could help close more of the gap between core PCE inflation and the Fed’s target.

  • Fading tariff effects could ease some of the remaining pressure on core goods prices.

  • A continued improvement in the inflation outlook could give the Fed more flexibility to recalibrate monetary policy.

CFA® and Chartered Financial Analyst® are registered trademarks owned by the CFA Institute.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. The views and opinions expressed may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. Investors should fully understand the risks associated with any investment prior to investing.

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