The Daily Froth: A Price to Remember - How Higher Memory Prices Are Feeding Into Inflation

Research evidence excerpt

The Daily Froth: A Price to Remember - How Higher Memory Prices Are Feeding Into Inflation

June 30, 2026

The measurement wrinkle: Computer software is a much larger share of core PCE than CPI, carrying a weight of 1.3%

vs 0.04%, respectively. Thus soaring computer prices have helped flip the usual relationship between the two inflation

measures. Instead of core PCE running below CPI, it's now running 50bp above it.

Core CPI vs Core PCE, YoY%

'85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 '23 '25

CPI PCE

Source: Wolfe Research, Haver Analytics as of May 31, 2026

The twist: Just as investors are beginning to notice rising computer prices, the BEA is changing how this category is

measured. As part of its annual revisions in September (link), core PCE will no longer rely solely on CPI software and

accessories. Instead, it will incorporate three price measures: CPI software and accessories, PPI application software, and

PPI cloud services. That matters because CPI software and accessories is currently rising 15% YoY, while PPI application

software and PPI cloud services are increasing a much more modest 4.9% and 1.0%, respectively. After speaking with

the BEA, we understand the weights will ultimately be determined by scope rather than a simple average. Even so,

a hypothetical equal weighting suggests the methodological change alone could trim roughly 10bp from core PCE

inflation.

This change comes alongside long-overdue revisions to legal services and portfolio management. We do not believe

these changes are politically motivated, although the optics are not great.

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