US PCE preview - Nomura

Analysts at Nomura offered their outlook for the PCE deflators.

Key Quotes:

"We forecast a 0.2% (0.179%) m-o-m increase in October core PCE inflation (Consensus: 0.2%), which would push up the 12-month change rate to 1.4% (1.389%), from 1.328% in September (Consensus: 1.4%). Considering the strong increase in core CPI and the unexpected strength of healthcare related prices of PPI in October (which is used for estimating the corresponding components of the core PCE price index), we think core PCE inflation should show a decent increase in the month."

"In particular, a strong pick-up in CPI rent inflation would likely boost core PCE although a smaller weight is assigned to rents in PCE than in CPI. Moreover, air passenger fares (a part of import price index), which is used for estimating the price index of PCE foreign travel by US residents, jumped strongly by 6.6% m-o-m in October, which will likely contribute solidly to core PCE inflation. In the medium term, we maintain our view that core PCE inflation will accelerate very gradually. Among non-core components, the price index for PCE food will likely be soft considering only modest CPI food inflation due to continued muted inflation in food-at-home prices"

"For the price index for PCE energy, we expect about a 1% decline considering the decline in CPI energy. Given the increased volatility in crude oil prices, the future path of gasoline prices looks more uncertain. However, we expect moderate increases in energy prices in the next couple of months. Altogether, we expect a 0.1% (0.121%) m-o-m increase for the price index for aggregate PCE (Consensus: 0.1%). This forecast translates to a 1.5% (1.541%) y-o-y increase (Consensus: 1.5%)."