Market Anticipates Core PCE Data Release: Analysts Brace for Confirmation of Inflation Trend

Market Anticipates Core PCE Data Release: Analysts Brace for Confirmation of Inflation Trend 

The Core PCE for January, which is the Federal Reserve's preferred measure of inflation, will be released on Thursday, February 29th, at 8:30 am ET. This report is significant as it will help confirm the trend of high inflation observed in other January data related to inflation. Many analysts have increased their forecasts for Core PCE following the strong readings in CPI, PPI, and US import prices for January.

Market expectations are for Core PCE to increase by 0.4% month-on-month (with a range of 0.1-0.4%), speeding up from December's 0.2%, marking the highest monthly increase in a year. Year-on-year, Core PCE is expected to ease to 2.8% (with a range of 2.6-2.9%) from the previous 2.9%. Meanwhile, headline PCE is forecasted to be at 0.3% month-on-month (previously 0.2%, with a range of 0.2-0.4%) and 2.4% year-on-year (previously 2.6%, with a range of 2.2-2.7%).

Special attention will also be paid to the "super core" metrics, which are closely linked to wage pressures. According to Nomura, there's an anticipation of a significant increase in US supercore PCE inflation to 0.569% month-on-month, the fastest pace since December 2021.

The January CPI release indicated a notable rise in services excluding housing, and any further pressure in the January PCE figures would contribute to the already observed increase in December.

Additionally, Personal Income is expected to rise by 0.4% in January compared to 0.3% in December, while consumption is anticipated to ease to 0.2% from December's 0.7%, with real consumption expected to decline by 0.1%.

The Federal Reserve will closely monitor this data for confirmation of the expected increase in month-on-month figures. Fed's Waller mentioned that based on an estimate considering producer prices, core PCE inflation likely rose to a 12-month rate of 2.8%, with three- and six-month rates increasing to 2.4% and 2.5%, respectively. Waller emphasized the need for further inflation data to ascertain if January's figures were an anomaly and reiterated the need for patience in Fed policy decisions.