US: PCE Deflator and Personal Income and Spending Data Today - Nomura

US: PCE Deflator and Personal Income and Spending Data Today - Nomura

Research Team at Nomura, notes that the US employment grew at a faster pace in February than in January but the average hourly earnings retreated in February, falling by 0.1%.

Key Quotes

“As such, we expect only a modest increase of 0.1% in personal income in February. On the spending side of the ledger, we forecast a 0.1% decline. Core retail sales disappointed in February, remaining unchanged over the month and spending on energy services likely dropped sharply as temperatures were generally warmer than historical norms. But other services spending likely remained on trend, balancing out some of the weakness in other categories.

PCE deflator: The relevant elements of PPI for PCE prices declined in February, while physician service prices were up. Our calculations indicate that the relevant PPI data will be a drag of 2bp to core PCE inflation, following a positive 2bp contribution in January. However, the strength in CPI’s core goods prices should boost core PCE inflation, which will likely offset the negative impact from the PPI data.

Moreover, excluding healthcare and financial services, most core service components from the CPI rose at a solid clip in February, which should translate to a similar pickup in the comparable categories in the core PCE price index. Taking into account all available information, we forecast a 0.183% increase in core PCE price index in February, which would keep the y-o-y comparison at 1.7%. Energy prices tumbled further in February while food prices rose modestly. Thus, we expect the February headline PCE deflator to decline by 0.1% m-o-m (unrounded: -0.07% m-o-m) pushing the y-o-y inflation rate to 1.0% from 1.3% previously.”

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