**As seen in Risk In The Week report 05/26/24,subscribe at cablefxm.co.uk/reports
The core PCE deflator rose by 2.7% Y/y in March, faster than the prior 2.5% and above the consensus median of 2.6%. Fed's preferred measure of inflation is now at its highest since October. The disinflationary pressures from durable goods are still present to a lesser extent, non-durable goods contribution rose on the month while services posted an uptick. This week's report will help bring light to the higher- for-longer rhetoric as inflation overshoots the target. We're set to receive a fresh batch of macroeconomic projections from the Fed and this metric is likely to be revised from the prior 2.6% 2024 forecast, we will see if Fed officials continue to support the view that inflation is coming back to target as soon as 2026.
Projections from 25 economists see the metric rising at 2.7% with a 0.1pp deviation from the high/low, according to data compiled by Bloomberg. An April upside surprise will record the fourth consecutive beat, this could trigger a market reaction and a potential reprice for the Fed. It is tricky to talk about this subject given the importance given to the CPI which is a component of the core PCE deflator but not an indicator the Fed uses to set policy. Economists at CIBC pencil the April figure at 2.7% Y/y, they said the Fed is likely to welcome any slowdown in the metric, even if it means looking at the second decimal point. CIBC warned of risks of potential upward revisions to the prior months.
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