US PCE expectations after recent US CPI miss - Nomura

Analysts at Nomura explained the implications for core PCE inflation after the recent CPI miss in US inflationary data.

Key Quotes:

"It is apparent that the weaker-than-expected core CPI is negative for the March core PCE price index. However, the core PCE price index is based on relevant components of PPI as well as CPI. In addition, other methodological differences should lead to a slightly smaller decline in core PCE inflation than in core CPI. For instance, despite a 0.3% fall in CPI’s physician services, PPI’s corresponding price index, which is an input into core PCE price index, increased by 0.2% m-o-m. 

Moreover, CPI’s food-away-from-home prices (which are categorized into non-core components in CPI but used for estimating food service component of core PCE price index) increased steadily by 0.2% m-o-m. Lastly, the weightings assigned to rent-related items in the core PCE price index are smaller than those assigned to related components in core CPI. Taking these factors into account, we forecast a 0.034% m-o-m decline for core PCE inflation in March, which translates into a 1.7% (1.651%) y-o-y increase, down from 1.8% (1.753%) in the prior month."