US: Balanced outlook for Core Inflation - Nomura

Analysts at Nomura suggest that as the US labor markets continued to tighten and disinflationary pressure from import prices has waned, they think core PCE inflation will pick up gradually to 2.3% in Q4 2019

Key Quotes

“One striking surprise in 2017 was the unexpected deceleration in core PCE inflation, the Fed’s preferred gauge of the underlying inflation trend. However, a large part of that slowdown was due to transitory factors not usually associated with economic fundamentals. As labor markets continued to tighten and disinflationary pressure from import prices has waned, we think core PCE inflation will pick up gradually to 2.3% in Q4 2019. While some upside risk to our inflation forecast exists given continued labor market tightening, the sensitivity of inflation to the output gap appears low and imbalances in certain goods and service markets could hold down aggregate price inflation. Overall, we view the risk to our inflation outlook as roughly balanced.”