Us inflation data have been in the spotlight in recent months, with the market ushering in a renewed consumer price index (CPI) in May two weeks ago, followed by an emergency 75 basis point hike by the Federal Reserve and turmoil in US financial markets.

Tonight, another indicator of US inflation, the personal consumption Expenditure (PCE) price index that the Fed is most concerned about, will follow the pace of CPI in May, which is much higher than expected year-on-year, to catch the Fed off guard again, or may core PCE have peaked and fallen slightly in May, as the market now expects? It's getting a lot of attention.

At 20:30 Beijing time this evening, the Bureau of Economic Analysis of the US Department of Commerce will release the US May PCE and core PCE price index.Economists generally expect the US PCE price index to rise 6.4 per cent in May from a year earlier, the highest level since 1982, up 6.3 per cent in April, 0.7 per cent month-on-month and 0.2 per cent in April.

For core PCE, the consensus expects it to fall slightly to 4.8 per cent year-on-year, up from 4.9 per cent in April and 0.4 per cent month-on-month and 0.3 per cent in April.

Will the PCE price index exceed expectations?

PCE and CPI are different in calculation method, weight and scope.

According to the research report of Guohai Securities, 1. CPI is calculated by pull weighted average method, while PCE is calculated by chain weighted average method. In contrast, the chain method can better reflect the substitution effect after the change of commodity prices.For example, after the sharp rise in oil prices, consumers may choose to consume energy other than crude oil, so as to reduce the fluctuation brought by oil prices to PCE, with the effect of "cutting peaks and filling valleys".

Second, CPI focuses on reflecting the changes in consumer prices of "urban residents", while PCE takes into account the consumption of rural residents and non-profit organizations (such as the government), so the weights of many projects are quite different from those of CPI.For example, the weight of housing project in CPI is 33%, while the weight of housing project in PCE is only 16%. The weight of energy projects in PCE has also been reduced to a certain extent.

According to the documents released by the U.S. Department of CommerceAbout 75 per cent of the prices of goods and services in PCE come from CPI data, but 25 per cent still come from PPI data and self-projections. For example, of the price values for PCE medical services (20.5 per cent of the total weight), only 5.95 per cent of the weight comes from CPI medical services, while the remaining 14.55 per cent comes from PPI medical services.

These differences will lead to a deviation between CPI and PCE. Guohai Securities believes that the difference between CPI and PCE is mainly affected by three projects:Energy, housing, health careThe difference between core PCE and core CPIMainly from the last two items。

In normal times, the trend of PCE in the US is roughly the same as that of CPI, but the gap between the two has been widening in recent months because gasoline prices and housing rents, which led to the surge in CPI, have a lower weight in the PCE price index.

But it's worth noting thatIn the PCE price index, the weight ratio of services far exceeds that of goods-33.8% for goods and 66.2% for services.

Among the commodities, the weight of non-durable goods exceeds that of durable goods. The weight of durable goods is 12.2%, and that of non-durable goods is 21.6%.Among the services, residential and water and electricity (19.4%) and health care services (16.5%) are the most weighted.Others include financial services and insurance (8.4%), food services and accommodation (5.7%), entertainment services (2.7%), etc.

In the CPI data of the United States in May, almost all the sub-items are on the rise, and the energy item is up 34.6% from the same period last year. In addition, housing, air tickets, used cars and other sub-indices have also risen rapidly, and sub-indices such as health care and home furnishings have also risen. In addition, the cost of doctors and hospitalizations rose slightly in the US PPI segment in May.

If you compare with the above data, it is true that there is no room for the US PCE price index to decline in May, especially in the case of accelerated service prices, and the possibility of slightly exceeding expectations cannot be ruled out.

The core PCE price index may slow slightly, but it will remain high.Credit Suisse analysts said earlier that the US core PCE may have peaked. The bank noted that most of the sectors that contributed to the unexpected rise in CPI were excluded from the core PCE, including energy costs.

Tonight's data will hardly affect the Fed's current decision.

Higher-than-expected PCE data will only strengthen Fed policy, while lower-than-expected PCE data will not change the current situation in which inflation is well above the Fed's 2 per cent target. At present, it has become a default basic assumption that US prices will remain high in the coming year.