US PCE nowcast shows bumpy path down for inflation

Our nowcast of the US PCE deflators imply inflation is not falling as smoothly as we had anticipated. But it still suggests inflation is on a path, albeit bumpy, back to 2%. In our view, the combination of a resilient labor market and inflation receding in fits and starts is consistent with a measured pace of Fed rate cuts ahead.

What you will learn:

• We estimate headline PCE rose 0.18% m/m in September and the core index 0.25%, only marginally less than the gains in CPI. Despite relying on different source data, stronger medical care inflation and airfares is responsible for most of the rise in PCE, as it was in the CPI data.
• Our estimates imply that headline PCE inflation will fall to 2.1% in September from 2.2% and core PCE inflation to 2.6% from 2.7%.