Annual national accounts update may add downside risks to PCE inflation

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Annual national accounts update may add downside risks to PCE inflation

UpdateM

Annual national accounts update may add downside risks to

PCE inflation

This week the BEA published a preview of the 2026 annual update of the National

Economic Accounts, which is expected to be implemented on September 30, 2026. The

update introduces a set of targeted methodological changes to the measurement of PCE

prices. Annual updates are typically applied retroactively, and this revision is likely to

affect data back to 1Q21. If the proposed methodological changes are indeed implemented

on a retroactive basis, they could have meaningful implications for the level of core PCE

inflation this year.

The most consequential change relates to computer software and accessories. The BEA

will replace the current deflator—based exclusively on the CPI for software—with a

composite index that incorporates both CPI and PPI measures, including PPIs for game

software publishing and for hosting and IT infrastructure services. These changes might

partially correct the issues highlighted by the Fed board earlier this year (see here).

The implications for inflation are potentially meaningful. The CPI software index currently

used in PCE has risen sharply in recent months, while the relevant PPIs have been much

flatter since late 2025. If the new composite index places a meaningful weight on these

PPI series—and if the changes are applied retroactively—this would introduce downside

risk to measured core PCE inflation in 2026. Based on the recent divergence across these

indices, core PCE inflation could be lower by as much as 20bp on a year-over-year,

depending on the final weights used by the BEA.

At the same time, the impact on volatility is less clear, but we think it could increase. The