US PCE deflator: Another modest increase in the offering - Nomura

Research Team at Nomura, suggests that the relevant elements from the US October PPI and CPI reports point to another modest increase.

Key Quotes

“Core CPI goods prices, most of which are inputs for the core PCE price index, increased in the month. Among PPI data, hospital service prices increased strongly compared to recent performance. Taking all these factors into account, we expect core PCE price index to increase by 0.1% (unrounded: 0.121%) m-om in October (Consensus: 0.1%), which would push up the year-on-year change rate to 1.8% from 1.7% (Consensus: 1.7%).  On non-core items, based on the September CPI report, food prices for the PCE deflator likely declined slightly over the month and energy prices likely grew above 3% m-o-m. All in all, we forecast that headline PCE inflation increased by 0.24% m-o-m (Consensus: 0.3%), which is 1.4% growth on a year-over-year basis (Consensus: 1.5%).”

“We continue to expect only a gradual increase in core PCE inflation. That said, the balance of risk to our PCE inflation outlook is tilted to the upside. Economic policies proposed by President-elect Trump have a potential to reduce labor slack significantly which would in turn accelerate wage inflation. Also, trade barriers such as import tariffs or quotas could exert inflationary pressure on tradable goods prices. Last, any significant change to healthcare policy, in particular cost control provisions in the Affordable Care Act or a reduction in federal grants to state-run Medicaid programs might have additional implications on inflation.”