US Core PCE Preview: Forecast by six major banks, inflation could accelerate

As markets approach the release time on Friday, October 27 at 12:30 GMT, the US Bureau of Economic Analysis (BEA) will release the Core Personal Consumption Expenditure (PCE), the Fed’s preferred inflation gauge. Below are the forecasts from economists and researchers at six major banks.

Expected headline is 3.4% year over year compared to 3.5% in August. Core PCE, meanwhile, is 3.7% YoY compared to the previous release of 3.9%. Monthly growth is anticipated to increase from 0.1% to 0.3%.

TDS

Although it was still slower than the 0.32% increase in the core CPI, TDS Core PCE inflation accelerated in September to its fastest MoM pace since May at 0.24% MoM. Additionally, we expect the headline PCE to increase by 0.30% MoM. We also observe a jump to 0.4% MoM in the PCE’s supercore measure.

SocGene

The PCE deflators are derived from the CPI, which showed headline and core pace increases of 0.4% and 0.3%, respectively. Since the rent component, which increased significantly in the CPI, has less relative weighting in the PCE deflator, we project a slightly less robust PCE headline increase. On the other hand, the projection is extremely thin, rounding down to 0.3%.

Citi

Based on components of the PPI and CPI, core PCE inflation in September is expected to increase by 3.7% YoY and 0.28% MoM. Although shelter prices are given half the weight they do in PCE, they should rise in line with the unexpected acceleration in owners’ equivalent rent in CPI. Prices for medical services should increase, albeit more slowly than in August—roughly 0.2% MoM.
The primary factor resulting in a softer 0.28% core PCE compared to 0.32% core CPI is the weight given to medical services prices in PCE rather than CPI. The remaining components of PCE should resemble CPI, albeit with a larger rise in airfares—which increased by roughly 2% in PPI data but only by 0.3% in CPI. September’s significant drop in used car prices will also have an impact on core PCE, albeit somewhat less so than on CPI. Similar to this, headline PCE inflation is expected to increase by 0.3% MoM and only slightly moderate to 3.4% YoY.

ING

Energy prices will lift the headline rate and we are not as optimistic that core inflation will rise just 0.2% MoM or 3.7% YoY as the market expects. We fear slight upside risks, and this combination of elevated inflation and strong growth could be the catalyst for the 10Y Treasury yield to clearly break above 5%.

Wells Fargo

Factoring in our expectation for the headline and core PCE deflators to increase 0.3% during the month, real consumer spending likely rose around 0.2%.

NBF

The annual core PCE deflator may have progressed 0.2% MoM in September, a result which should translate into a two-tick decline of the 12-month rate to 3.7%. Although still high, this would still be the lowest rate observed in 28 months.