US PCE Inflation Bank Preview: Consensus is for a high release

The Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure (Core PCE), will be published on Friday, February 24 at 13:30 GMT and as we get closer to the release time, here are the forecasts of economists and researchers of eight major banks.

US PCE Price Index is foreseen at 4.9%year-on-year in January easing from the previous 5%, while the more relevant Core PCE Price Index is expected to fall a tick to 4.3% YoY. On a monthly basis, Core PCE inflation is forecast to rise by 0.4%, above 0.3% reported in December.

ING

“The Fed’s favoured measure of inflation, the core personal consumer expenditure deflator, looks set to rise by 0.4% MoM, more than twice the 0.17% MoM required over time to produce YoY inflation of 2%.”

Deutsche Bank

“We'll have to wait until Friday for the main event this week as the latest core PCE deflator (DB at +0.5% MoM vs. +0.3% last month) come out. If our forecast for core PCE is correct the YoY rate will be sticky at 4.4% and could edge up to 4.5% with the three-month (3.9% vs. 2.9%) and six-month (4.6% vs. 3.7%) annualised growth rates going back up.”

SocGen

“We pencil in gains for the PCE of 0.5% MoM for headline and 0.4% for core. Some on the street estimate +0.55% for core which would take the annual rate up to 4.5% from 4.4% in December. The outcome may decide how the second half of the month pans out and if budding speculation of 50 bps in March is simply outlandish, or not.”

TDS

“We expect core PCE prices to accelerate in Jan to its strongest MoM pace in five months. We project January core PCE inflation to have accelerated to 0.5% MoM, driven by a lessening in core goods price deflation and strong core services inflation (also outside of housing services). The YoY rate likely stayed unchanged at 4.5%, suggesting price gains remain elevated. With also stronger gasoline prices in January, headline PCE inflation likely ended up at 0.5% MoM.”

NBF

“Still in January, the annual core PCE deflator may have moved down from 4.4% to a 15-month low of 4.3%.”

CIBC

“The Fed’s preferred gauge of inflation, core PCE prices, likely maintained a 0.3% monthly pace, slightly slower than its CPI counterpart given the lower weight of shelter in the index, causing the annual rate to subside to 4.3%.”

Citibank

“We expect a strong 0.54% MoM increase in core PCE inflation in January with upside risks of a print that rounds to 0.6%. This would imply core PCE rising to 4.5% YoY from 4.4% in December.”

Credit Suisse

“We anticipate an above-consensus acceleration in both headline and core PCE, from 0.1% MoM and 0.3% MoM in Dec to 0.6% MoM and 0.5% MoM respectively. If realized, these readings would be seen as reinforcing hawkish Fed policy risks, and on the margin might bring further weight to the scenario of a 50 bps hike in March. At the same time, weaker than expected reading would represent a more substantial surprise relative to now more hawkish consensus, and as such needs to be considered as a tactical tail risk. This said, we suspect that the bar for a downside PCE surprise to trigger an actual challenge of the recent shift in Fed policy expectations is very high. A particularly weak data surprise would also likely lead to speculation about possible ‘technical’ reasons behind it, which might undermine its credibility and ultimately its market impact.”

PCE inflation related content

About the Core Personal Consumption Expenditures Price Index

The Core Personal Consumption Expenditures is published by the US Bureau of Economic Analysis, and is the Federal Reserve’s preferred measure of inflation. A reading above expected values shows that consumers are spending more money than was estimated by economists. This data excludes seasonal and volatile products, giving a more accurate picture of price behavior. Therefore, a higher-than-expected reading of the Core PCE is bullish for the US Dollar, as it indicates inflationary pressures are stronger than what the market expected, usually leading to tighter monetary policy by the Fed.

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