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US Core PCE Preview: Seven Major Banks Forecast, Inflation Falls, But Still Too High

The Fed’s preferred inflation indicator, Core Personal Consumption Expenditure (PCE), will be published by the US Bureau of Economic Analysis (BEA) on Thursday, November 30 at 13:30 GMT and, as As we approach publication time, here are the forecasts from economists and researchers at seven major banks.

Headline PCE is expected to come in at 3.1% YoY versus the previous release of 3.4%, while Core PCE is expected to decline two points to 3.5% YoY. If so, the headline CPI would be the lowest since the first quarter of 2021, but would still be well above the 2% target set by the Fed.


Prices would have risen 0.1% in October compared to September and 0.2% excluding energy and food (underlying rate). Therefore, the PCE deflator would also indicate that inflationary pressures are easing. However, the year-on-year rates of 3.0% and 3.5% (underlying rate) would still be well above the 2% target set by the central bank.


The data stream includes the Fed’s favorite inflation measure, which we expect to show a price increase rate of 0.2% month-on-month. This broadly coincides with what the central bank wants and, if repeated over time, the annual inflation rate measured by the basic personal consumption expenditure deflator would return to 2%.


Our CPI deflation forecast is just 0.0%, in line with the previously reported October CPI.


For its part, the annual core CPI deflator could have advanced 0.2% month-on-month in October, a result that should translate into a decrease of 2 points in the 12-month rate, to 3.5%. Although still high, this rate would still be the lowest seen in 30 months.


We expect a 0.17% month-on-month increase in core CPI inflation in October, based on elements of a softer-than-expected October core CPI and PPI (0.23%), with a decline in accommodation away from home (hotel prices) and further moderation of key housing prices, namely landlords’ equivalent rent. This will push up CPI inflation less compared to September. Overall, we expect a softer 0.14% increase in prices of basic services, excluding housing, following a stronger 0.42% increase in September, while “super core” inflation could be somewhat stronger in November and could rebound in December.


Weaker than expected core CPI inflation of 0.2% month-on-month bodes well for core CPI prices in October. In fact, we forecast a similar increase for the latter, of 0.2% month-on-month, which should be reflected in a further decline in the year-on-year rate to 3.6% from 3.7% in September, its lowest year-on-year pace since April 2021. The slowdown in momentum should also be reflected in the moderation of core non-housing PCE services inflation, which would likely stand at 0.2% month-on-month, down from 0.4% in September. We also expect the headline PCE index to advance 0.1% MoM and 3.3% YoY in October.


The PCE deflator will remain stable in month-on-month terms. With previous October reports on retail trade, employment and CPI providing many clues, and the Fed maintaining a more patient stance, we do not expect any major surprises and market sensitivity to the release is relatively low.

Source: Fx Street

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