The US personal income and expenditure report contains many figures, but the core PCE deflator data of 0.1% month-on-month for August stands out. The consensus was 0.2% and we feared a 0.3% result given what we saw in the core CPI. There are quite a few revisions, but now we have three consecutive numbers of 0.2% or 0.1% mom for what is the Fed’s favorite measure of inflation. This should go against the need for a rate hike in the fourth quarter, especially if we are not going to get much data over the next month due to the high probability of a government shutdown.
The year-on-year rate remains elevated at 3.9%, but we are hopeful that the declines will continue in the coming months, given that we have readings of 0.5% month-on-month and 0.4% month-on-month for September and October 2022 that are left out. of the annual comparison. Three-month annualized rates are already approaching the Fed’s 2% target and assuming we see 0.2% month-on-month numbers for the rest of the year, we would have annual core inflation close to 3% year-over-year by year-end , which should calm some of the hawks’ fears about the Federal Reserve.