US Core PCE Preview: Forecasts from seven major banks, inflationary pressure may subside

The Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure (PCE), will be released by the US Bureau of Economic Analysis (BEA) on Friday, June 28 at 12:30 GMT and as we get closer to the release time, here are the forecasts of economists and researchers of seven major banks.

The US Core PCE inflation is expected to grow at a slower pace of 0.1% against 0.2% in April month-on-month. Annually, the underlying inflation is projected to decelerate to 2.6% from 2.8% in April.

Deutsche Bank

The focus in the US next week will be on spending and PCE data on Friday. Our US economists expect MoM growth in core PCE to remain at +0.2% and see MoM growth in both income and consumption picking up to +0.4% and +0.3%, respectively (vs +0.3% and +0.2% in April).

TD Securities

CPI and PPI data suggest core PCE inflation lost further momentum in May, with the series advancing 0.13% m/m — its lowest monthly gain of the year and following a 0.25% April expansion. We also look for the headline PCE and the supercore to print 0.0% each in May. Separately, personal spending likely advanced 0.3% m/m, with income rising 0.4%.

Charles Schwab

Back home, the big story this week is still a couple of days off when Friday morning brings May Personal Consumption Expenditures (PCE) prices data, the Fed's favored inflation monitor. Analysts expect 2.6% year-over-year PCE growth for both headline and core, according to Trading Economics, but rising crude oil prices this month stirred fresh inflation concerns. Month-over-month PCE prices are expected to rise 0.1% for core, which excludes volatile energy and food, with headline PCE flat.

Citi

USD: US May PCE Deflator MoM – Citi: 0.0%, median: 0.0%, prior: 0.3%; PCE Deflator YoY – Citi: 2.6%, median: 2.6%, prior: 2.7%; Core PCE MoM – Citi: 0.2%, median: 0.1%, prior: 0.2%; Core PCE YoY – Citi: 2.6%, median: 2.6%, prior: 2.8% - based on details of CPI and PPI, Citi Research expect a 0.15%MoM increase in core PCE inflation in May, technically rounding to a 0.2%MoM but with clear risk of a softer 0.1% increase. But regardless of 0.2% or 0.1%, May core PCE inflation should slow markedly compared to 0.25% in April, with the YoY rate dropping from 2.8% to 2.6%. Most notably, various services prices in CPI slowed in May. Core goods prices should also decline with a boost from pharmaceutical prices offset by declines in certain recreation equipment prices and cars. Headline PCE should be flat on the month but would be close to rounding to a 0.1%MoM increase. This would mean headline PCE also pulls back to 2.6% on a YoY basis.

MUFG

The release in the week ahead of the latest US PCE report is expected to provide confirmation that the core deflator increased by only +0.1%M/M in May which alongside leading indicators pointing towards a further softening of US labour demand is encouraging US rate market participants to price back in multiple Fed rate cuts in the 2H of this year.  

ING

May PCE figures are released this Friday. If the US May core PCE on Friday does come in at the consensus 0.1% month-on-month, the short-term downside for the dollar against European currencies may be less pronounced as markets could still favour defensive positions ahead of the French vote on Sunday.

Rabobank

In the U.S., eyes will be on the PCE deflator for May. Based on the inputs from the CPI, the PPI and import prices, the core rate is anticipated to show a deceleration to 0.1% m/m and 2.6% y/y.