The market will heavily discount today's PCE inflation data. Why? Because the US just changed the way PCE inflation is calculated: Beginning with today’s release, the US changed the methodology for 3 key PCE inflation categories and revised data back to 2021: 1. Portfolio management/investment advice 2. Computer software/accessories 3. Legal services The biggest change is in portfolio management fees. Under the old methodology, rising asset values could show up partly as higher "prices" for portfolio management services. For example, if an adviser charged 1% of assets and the portfolio rose 20%, the dollar fee would rise 20% even though the adviser did not raise the 1% fee. The new methodology uses an employment-based measure to estimate the quantity of services, reducing the amount of the increase that is classified as inflation. For software, the US now uses a broader composite. For legal services, an unpublished CPI series is being replaced because it had become "unusually volatile." We estimate the methodology alone could reduce Core PCE inflation by up to 20 basis points. In the PCE inflation data released just now, both headline and Core PCE inflation were revised down by 30 basis points for July. We do not interpret the entire 30 basis point drop as disinflation. Part of it is literally a measurement change.