The Bureau of Economic Analysis (BEA) under the U.S. Department of Commerce is set to implement a methodological adjustment in September for calculating portfolio management fees within the Personal Consumption Expenditures (PCE) price index. This technical revision is expected to exert downward pressure on the core PCE inflation reading while simultaneously revising upward the measures for real personal consumption expenditure and productivity.
Analysis from Bloomberg Economics estimates that applying the new methodology would have reduced the year-on-year increase in the core PCE for May by 13 basis points. Once the BEA completes its full suite of statistical adjustments, the core PCE inflation reading is anticipated to be less significantly elevated than current figures suggest.
The revision will also lead to an upward adjustment in real personal consumption expenditure. Calculations indicate that the year-on-year decline in real spending for May, previously at -1.6%, would shift to a growth of 4.8% under the new method. This change is projected to provide a 2 basis point boost to 2025 GDP growth and a 9 basis point lift to the quarter-on-quarter annualized GDP rate in the first quarter of 2026.
For financial markets, this adjustment signals a potential narrowing of the persistent and anomalous gap between the Federal Reserve's preferred inflation gauge and the Consumer Price Index (CPI), offering a new reference point for policy assessment. Concurrently, economic growth data will undergo corresponding revisions.
Methodological Shift for Fees to Lower Core PCE
The BEA announced that starting in September, it will adopt the Bureau of Labor Statistics' "Current Employment Statistics (CES)-based quantity extrapolation for the portfolio management and investment advice industry." This will replace the previously used BLS Producer Price Index (PPI) deflation method for portfolio management and investment advisory services. The revision will apply retroactively to historical data from 2021 onwards.
The new methodology will use total hours worked—calculated as employment multiplied by average hours—as a fresh metric for gauging real expenditure. This measure, combined with nominal spending data, will then be used to derive the PCE price index.
Portfolio management fees rose 21.6% year-on-year in May, contributing 37 basis points to the core PCE. Under the adjusted calculation method, this year-on-year increase would be lowered to 14.3%, with its contribution to core PCE correspondingly narrowing to 24 basis points.
The significant rise in portfolio management fees in recent months has been a primary driver behind the unusually large divergence between core PCE inflation and core CPI inflation. The core PCE measure, a key inflation indicator monitored by the Federal Reserve, has consistently registered higher than core CPI.
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