U.S. headline PCE inflation likely to have fallen in January

Headline PCE inflation in the U.S. is expected to have fallen in the month of January. According to a TD Economics research report, the PCE inflation is likely to have fallen to 1.6 percent year-on-year, reflecting a 0.3 percent sequential rise in prices. The rise shows higher gasoline prices along with a strong firming in the core. But core PCE is likely to have come below the strength seen in the core CPI and register a 0.2 percent sequential rise, noted TD Economics.

This is mainly because of the healthcare services component, which is likely to post a more modest uptick than in the CPI report. PCE healthcare prices most closely follow producer level prices, and while the latter rose on balance, the rise was focused mainly in hospital outpatient care services. Therefore, core PCE inflation is expected to be stable at 1.5 percent year-on-year.

Nominal PCE is likely to have risen 0.2 percent in January, suggesting a 0.1 percent fall in real spending. The subdued footing in the first quarter might be in line with real PCE tracking near a comparatively modest 2 percent.

“We expect January spending gains to be driven by services, with a neutral contribution from nondurables and a decline in durable goods spending. We also expect a soft 0.2 percent increase in December personal income”, added TD Economics.

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