US: Expect steady increase in core PCE price index in February - Nomura

According to research team at Nomura, relevant elements from the February PPI and CPI reports point to a steady increase in US core PCE price index in February.

Key Quotes

“Core good prices from the CPI report, most of which are inputs for the core PCE price index, remained essentially unchanged. To that extent, core PCE inflation will likely slow as core CPI did in February. As for PPI’s relevant components, hospital service prices of PPI increased solidly by 0.2% while PPI’s physician service prices remained flat. Taking these factors into account, we expect core PCE inflation to decelerate to 0.164% m-o-m (1.71% y-o-y) in February (Consensus: 0.2% m-o-m, 1.7% y-o-y), following a 0.299% increase (1.74% y-o-y) in the previous month. Incoming information on inflation suggests that the y-o-y core PCE inflation will drift in a very narrow range in the short-run but accelerate gradually in the medium term.” 

“On non-core items, PCE deflator for food likely improved notably considering the stronger-than-expected increase in the CPI food index, which was up 0.2% m-o-m in February. This 0.2% advance marked the largest increase since September 2015. On the other hand, the CPI energy index was weaker than expected, driven by lower gasoline prices and softer-than-expected increase in electricity prices. Altogether, we forecast a 0.123% m-o-m increase in headline PCE (2.09% on a y-o-y basis, Consensus: 0.1% m-o-m, 2.1% y-o-y).”