US: August core PCE price inflation to be steady at 0.2% - Nomura

Analysts at Nomura explain that based on relevant data from the August CPI and PPI reports, their forecast for US August core PCE price inflation is a steady 0.2% (0.183%) m-o-m increase, equivalent to a 1.4% (1.37%) y-o-y gain.

Key Quotes

“Core CPI jumped strongly by 0.248% m-o-m in August (compared to 0.114% m-o-m in July). However, given the difference in relative importance for rent-related items and health care service prices between the core PCE price index and core CPI, we do not expect that core PCE inflation will be as strong as core CPI inflation in August. Note that physician service and hospital service prices from the PPI report earlier this week, which are used for estimating the corresponding prices of the core PCE price index, were essentially unchanged in August. Additionally, the relative importance of rent and OER, which pushed up core CPI inflation, is smaller in core PCE than in core CPI, implying core PCE inflation will come in lower than core CPI. Regardless, given August CPI data, y-o-y core PCE inflation is now less likely to decline further in coming months from the current level of 1.4%.”

“Among non-core components, we expect aggregate energy PCE prices to increase sharply as the prices of motor fuel rose in the month. For food PCE inflation, we expect a slight decline based on the CPI food-at-home price index. Altogether, we expect headline PCE index to increase by 0.3% (0.270%) m-o-m, which is equivalent to a 1.49% y-o-y increase.”