US: PPI suggests slower core PCE inflation in April – Nomura

Analysts at Nomura suggest that after digesting the details of CPI, PPI and import prices for April, their forecast for the April core PCE inflation now stands at 0.132% m-o-m, which would push down its 12-month change to 1.8% (1.830%) from 1.9% (1.882%) in March.

Key Quotes

“Decomposing the expected m-o-m change of core PCE price index into three major data sources (CPI, PPI and the others), weaker PPI medical care service prices, financial service prices and airline fare prices likely lead to a further slowdown in m-o-m core PCE inflation. In particular, we think both PCE physicians’ services prices and hospital services price inflation, both of which are derived from PPI data, were weak in April after large increases earlier this year.”

“In addition to a positive base effect, medical care prices contributed solidly to y-o-y core PCE inflation in March. However, it seems unlikely that medical care prices would push up core PCE inflation further substantially, which supports our medium-term inflation outlook that core inflation will pick up only gradually. We judge that big increases in medical care prices beginning in October of last year were a reflection of annual updates of reimbursement rates for public and private insurance.”

“As for headline April PCE inflation, we now expect a 0.2% (0.195%) m-o-m rise, which translates into a 2.0% (1.987%) advance on a y-o-y basis, essentially unchanged from the previous month.”