Aug PCE Inflation Estimate

In Q1 2024 CPI was higher than expected. Then in Q2 CPI was mostly cooler than expected driven by exceptionally cool May and Jun. Jul was again a cool month, while Aug was more mixed - headline came in slightly cooler than expected, while core came in hotter than expected. The main reason for higher MoM core read was shelter.

Aug CPI came in mixed with headline fairly in line with my estimates and core CPI missing almost entirely due to shelter. Headline CPI was +4 bps (+0.04 pp) above my MoM estimates, but almost exactly in line (less than +1 bps) with my YoY estimates. Core CPI came in +11 bps above my MoM estimates and +9 bps above my YoY estimates:

PPI has been even more volatile YTD. It managed to beat expectations fully only in 2 of the last 8 months (May and Jul), while it also beat expectations for headline PPI (but missed for core) in Mar. After revisions now we again have 2 MoM deflations (May and Jul) in 8 months YTD. We will see how these months look like after all revisions are made.

Unlike CPI and PPI which were more volatile and mostly higher than expected in the first months of 2024, PCE mostly came in line with expectations YTD with even 2 beats for core PCE in Feb and Apr, but also one miss for core in Jun.

CPI was mixed in Aug with headline coming roughly in line and core higher than expected. At the same time PPI came in hotter than expected. What does that mean for Aug PCE inflation?

More importantly, what does that mean for the Fed?

My Aug PCE inflation estimates are…

• Headline PCE

  • +0.1% MoM and +2.2% YoY

• Core PCE

  • +0.1% MoM and +2.6% YoY

My unrounded estimates are:

If my estimates are correct, the Fed will be looking at headline PCE almost at target - only 15 bps away. Also this would be cooler than expected. Current consensus is:

+0.1% MoM and +2.3% YoY for headline PCE

+0.2% MoM and +2.7% YoY for core PCE

My estimates are -0.1 pp lower for almost all key metrics except headline MoM (same as consensus).

+2.2% PCE inflation, if we get it, might worry some Fed officials judging whether inflation is softening faster than they would want. Fed Governor Waller already expressed such worries in his speech Friday. If they would see it softening more aggressively that could increase a potential for the labor market weakening faster than they expect. If that’s the case, they might also cut more aggressively than they expect at this point. What they end up doing will depend on the unemployment rate and PCE forward trajectory.

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