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 we get closer to publication time, here are the forecasts . from economists and researchers at six major banks.
The overall 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%.
Energy prices will increase the headline rate and we are not optimistic that core inflation will rise to 0.2% MoM or 3.7% YoY as expected by the market. We fear a slight increase in risks, and this combination of high inflation and strong growth could cause the 10-year Treasury yield to clearly break above 5%.
Core CPI inflation accelerated in September to the fastest month-on-month pace since May, to 0.24% month-on-month, although this was less than the 0.32% increase in core CPI. We also expect headline PCE to increase by 0.30% mom. We also expect the PCE superindex to rise to 0.4% mom.
The annual core CPI deflator may have increased by 0.2% month-on-month in September, a result that should translate into a reduction of two points in the interannual rate to 3.7%. Although still high, this rate is still the lowest seen in 28 months.
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 slight increase in the headline CPI, because the rental segment, which has increased significantly in the CPI, has a smaller weight in the CPI deflator. However, the projection is very tight, with a rounding down of 0.3%.
Given our forecast for headline and core CPI deflators to rise 0.3% on the month, real consumer spending is likely to rise around 0.2%.
Core CPI inflation should rise to 0.28% MoM and 3.7% YoY in September, based on CPI and PPI elements. House prices should rise, in line with the surprising acceleration of the rent equivalent of homeowners in the CPI, even if these prices receive half the weight in the CPI as they do in the CPI. Prices of medical services should increase more than August, but still moderate ~0.2% MoM. Since the prices of medical services have a greater weight in the PCE than in the CPI, this is the main difference that leads to the slower core PCE of 0.28% compared to the core CPI of 0.32%. Other elements of the CPI should be similar to the CPI, although there is a greater increase in fares, 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 which is slightly below the CPI. Headline CPI inflation should increase by 0.3% month-on-month and moderate slightly to 3.4% year-on-year.