The Federal Reserve Board published a FEDS Note examining the recent surge in the Personal Consumption Expenditures price index category for Computer Software and Accessories and arguing that the category’s contribution to inflation may be overstated by measurement problems. The note finds that the category rose 73.1 percent at an annualized rate from November 2025 through March 2026, adding 0.66 percentage points to core PCE inflation and 2.8 percentage points to core goods PCE inflation, even though it makes up 1.2 percent of the core PCE basket and has generally fallen in price over the past 25 years. It concludes that measurement error may explain a quarter to well over half of the category’s recent contribution to core PCE inflation. The note highlights three possible sources of error. The Bureau of Economic Analysis uses the Bureau of Labor Statistics Consumer Price Index for Computer Software and Accessories to deflate the PCE category, but the CPI category includes flash drives and blank media that are not in the PCE basket. It also argues that subscription pricing and continuous software updates make matched-model price comparisons less reliable, while the lack of explicit quality adjustment becomes more problematic as AI-related features are added. On the authors’ estimates, correcting only for the CPI-PCE category mismatch would reduce the category’s contribution to core goods PCE by about 25 percent. Combining that mismatch adjustment with a partial quality adjustment would lower the category’s annualized increase from 73.1 percent to about 22.0 percent, reducing core goods PCE inflation to 3.68 percent from 5.47 percent and core PCE inflation to 3.96 percent from 4.38 percent over the same four-month period. The note says these potential biases could become more relevant if the rapid rise in the Computer Software and Accessories index persists, particularly as AI-related demand and software quality changes continue to affect pricing and measurement.
Federal Reserve Board2026-05-22
Federal Reserve Board note finds software and accessories measurement issues may explain a quarter to well over half of recent core PCE contribution
The Federal Reserve Board published a FEDS Note arguing that recent increases in the Personal Consumption Expenditures price index for Computer Software and Accessories may overstate inflation due to measurement problems. The authors cite category mismatches between Consumer Price Index and PCE data, challenges from subscription pricing and continuous updates, and missing quality adjustments for AI-related features, and estimate that correcting these issues could reduce the category’s annualized increase from 73.1 percent to about 22.0 percent and lower recent core PCE and core goods PCE inflation. The note warns that these biases could grow if rapid price increases in this category persist.