BEA Plans to Adjust PCE Methodology; Goldman Sachs Estimates Core Inflation Could Be Revised Down by 0.2 Percentage Points
Claire Weston
The Bureau of Economic Analysis will change how it calculates three PCE price-index components starting September 30. Goldman Sachs estimates the revision will shave about 0.2 percentage points off core PCE inflation; UBS warns the selection of revised series 'appears designed to lower inflation' and flags transparency risks.
What exactly is changing? Three adjustments at a glance
First: computer software and accessories. The current method uses CPI software prices exclusively. The new method blends in two PPI series — data-processing services and video-game software — to build a "composite price index." This means → because both PPIs are currently running cooler than the CPI software component, switching the data source mechanically lowers the inflation reading.
Second: portfolio management services. This is the biggest of the three. The current method deflates nominal spending with the industry's PPI; because rising asset prices push up management fees, this component has been running at 21.6% year-on-year — the second-largest contributor to core PCE inflation. The new method uses total hours worked in the industry to measure "real service volume," then backs into the price. In plain terms = instead of asking "how much did fees rise?", the BEA will ask "how many more people did the industry hire?" — two very different numbers.
Third: legal services. The current method uses CPI legal-services prices; the new one substitutes a composite built from specific legal-services PPI series. Goldman estimates this change will actually nudge core PCE up by about 0.04 percentage points — the only upward push, and a small one.
How much will the inflation numbers move?
Goldman's estimate: May 2026 core PCE year-on-year inflation revised down by roughly 0.2 percentage points to 3.2%. The bank accordingly cut its December 2026 core PCE forecast from 3.2% to 3.0%; its December 2027 forecast stays at 2.2%.
UBS arrives at a nearly identical figure: under the new method, the past twelve months of headline PCE inflation would be about 0.21 percentage points lower, and core PCE about 0.23 percentage points lower. This means → two major banks, working independently, converge on a downward revision of roughly 0.2 percentage points.
Portfolio management alone accounts for almost all of the shift. UBS calculates the new method would cut that component's year-on-year price increase from 21.6% to 9.0%, reducing its inflation contribution by about 0.21 percentage points.
Why does UBS say the revisions look cherry-picked?
UBS notes that of the three series the BEA chose to revise, two happen to be among the top four contributors to core PCE inflation over the past year — portfolio management (second-largest) and computer software and accessories (fourth-largest).
UBS writes: "Only series that have a sizable positive impact on inflation under the current methodology are being revised. Series that are equally problematic but have a neutral or negative inflation impact — spectator sports, various household-operations price series, photo processing, computer prices — are not included."
This reflects a deeper concern: if a methodology revision touches only the items that push the number up, and leaves untouched the items that pull it down, the revision itself has a directional bias — even if each individual technical change has a defensible rationale.
How serious is the transparency problem?
Goldman notes the BEA has not disclosed the specific weights of the three inputs in the new software composite index, making its estimates uncertain. In plain terms = the formula changed, but the weights are not public — outsiders can only guess.
UBS is blunter: "The new methodology is notably lacking in transparency… it will make it harder for external institutions to forecast and verify official inflation data." The bank adds that "if the statistical agency is subject to partisan political influence, this lack of transparency makes inflation data more susceptible to manipulation."
There is already a precedent: the Bureau of Labor Statistics' CPI legal-services data was largely unpublished from 2023 onward due to sample-quality issues. The BEA quietly departed from the CPI data source in January and March of this year without public disclosure — and acknowledged it only after outside researchers flagged anomalies.
What does this mean for markets and the Fed?
Once the changes take effect on September 30, core PCE — the Fed's preferred inflation gauge — becomes harder to predict, and the market's job of interpreting inflation data gets more difficult.
This means → the uncertainty around the Fed's policy path rises as well. The same underlying inflation trend will "look" lower after the methodology switch, but actual price pressures in the economy do not disappear because a statistical method changed.
CPI is unaffected by this revision. This reflects a likely shift: markets may increasingly cross-check CPI against PCE, and the "gap" between the two indicators could itself become a focal point.
Content is for reference only, not financial advice.