Many components of the personal consumption expenditures (PCE) price index are influenced by the labor market, but recent research from the Federal Reserve Bank of Cleveland highlights that certain “non-market” items in the index are more closely linked to stock market trends. According to a new analysis by Randal Verbrugge and Saeed Zaman, these non-market components played a significant role in keeping PCE inflation elevated during 2023 and 2024.

The authors note that most parts of PCE inflation rely on observed market prices and were responsible for disinflation as labor market conditions gradually loosened over this period. However, they state, “Non-market components, which must be imputed, showed far less deceleration over this timeframe, which has helped to keep overall PCE inflation elevated.”

Verbrugge and Zaman explain further: “This is because some of the components of the non-market-based category, mainly imputed financial services, are strongly correlated with stock market performance. Given strong stock market performance in 2023 and 2024, it is not surprising that non-market-based inflation remained elevated.”

The Federal Reserve Bank of Cleveland conducts research on economic issues relevant both locally and nationally. The bank also supervises financial institutions within its district—which covers Ohio and parts of Pennsylvania, West Virginia, and Kentucky—and supports payment systems for the US Treasury.

The Cleveland Fed is one of twelve regional banks in the Federal Reserve System. It works alongside the Board of Governors in Washington DC to help set monetary policy and support communities through research and educational outreach.

Those interested can read more about this analysis in the Economic Commentary: Understanding Inflation via Developments in Market and Nonmarket Inflation Rates or learn more at The Center for Inflation Research.

Chuck Soder is listed as a media contact for further information.