US Core CPI Preview: Six Major Banks Forecast, Inflation Accelerates

The Fed’s preferred inflation gauge, Core Personal Consumption Expenditure (PCE), will be published by the US Bureau of Economic Analysis (BEA) on Friday, October 27 at 12:30 GMT and, as As we approach publication time, here are the forecasts from economists and researchers at six major banks.

The general index is expected to be 3.4% year-on-year, compared to 3.5% in August. For its part, the underlying CPI will stand at 3.7% year-on-year, compared to 3.9% in the previous publication. On a monthly basis, it is expected to accelerate to 0.3% from 0.1%.

ING

Energy prices will lift the headline rate and we are not as optimistic that core inflation will rise by just 0.2% MoM or 3.7% YoY as the market expects. We fear slight upside risks, and this combination of high inflation and strong growth could be the catalyst for the 10-year Treasury yield to break clearly above 5%.

TDS

Core CPI inflation accelerated in September to its fastest month-on-month pace since May, to 0.24% month-on-month, although it would still be below the 0.32% increase in core CPI. We also expect the headline PCE to advance 0.30% mom. We also expect the PCE superindex to rise to 0.4% mom.

NBF

The annual core CPI deflator could have advanced 0.2% month-on-month in September, a result that should translate into a decrease of two points in the interannual rate to 3.7%. Although still high, this rate would still be the lowest seen in 28 months.

SocGen

The CPI deflators are based on the CPI, which increased by 0.4% for the general index and 0.3% for the core. We forecast a slightly lower increase in the headline CPI, as the rental component, which increased significantly in the CPI, has less relative weight in the CPI deflator. However, the projection is very tight, with a rounding down of 0.3%.

Wells Fargo

Given our forecast for the headline and core CPI deflators to rise 0.3% over the month, real consumer spending is likely to rise around 0.2%.

Citi

Core CPI inflation should rise 0.28% MoM and 3.7% YoY in September, based on CPI and PPI elements. House prices should rebound, in line with the surprising reacceleration of homeowners’ equivalent rents in the CPI, although these prices receive half as much weight in the CPI as they do in the CPI. Prices for medical services should rise more than in August, but still a modest ~0.2% MoM. Since medical services prices have a much larger weight in the PCE than in the CPI, this is the key difference that leads to a softer core PCE of 0.28% versus the core CPI of 0.32%. Other elements of the CPI should be similar to those of the CPI, although with a greater increase in airfares, which rose around 2% in the CPI data, but a modest 0.3% in the CPI. Another significant decline in used car prices in September will also weigh on the core CPI somewhat less than the CPI. Headline CPI inflation should increase 0.3% month-on-month and moderate slightly to 3.4% year-on-year.