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November PCE inflation report (today) was another tame inflation with Core +0.17% MoM, a second consecutive tame PCE report and adding to the constellation of “soft” CPI and PPI reports.
- We continue to view 3M annualized CPI or PCE as a better metric for inflation trends
- 3M annualized Core PCE collapsed to 3.63% vs 5.23% in Oct and set to fall to 2.14% next month
- Curiously, Financial Services +.07% of the +0.17% rise, or almost half. How did Financial Services have inflation?
- Lastly, FOMC forecast for Dec 2022 Core PCE inflation remains 4.8% (range of member forecasts was 4.6% to 5.0%) and is tracking 4.2% Dec 2022.
- Realized inflation is tracking a staggering 60bp below FOMC forecast.
Below are the contributors to Core PCE in November.
- Housing is the largest contributor
- Next is Financial Services
Tireless Ken analyzed the components of Financial Services below. As he highlights:
- Portfolio Management is the primary contributor to the Nov MoM rise.
- Tireless Ken explains the factors below (see his comments)
December 2022 inflation tracking WAY below Fed projections
The December SEP (summary of economic projections) of FOMC members is shown below.
- Dec 2022 Core PCE inflation forecast was +4.8%
- The range was 4.6% to 5.0% for FOMC members
- Not a single FOMC member saw Dec 2022 inflation below 4.6%. This is staggering.
- As noted above, Dec Core PCE inflation tracking towards 4.2%
- That is tracking way below FOMC forecasts. I mean, 60bp below.
Ultimately, if Dec and next few inflation prints are similarly tame, which we expect, then the Fed path is far more hawkish than is required. This is what we would view is positive for risk assets.
This does make me wonder if the Haver Analytics hack has affected Fed forecasts.