United States: Higher August forecast with methodology shift – TD Securities

TD Securities economists Eli Nir and Oscar Munoz raise their August core PCE forecast after stronger PCE-relevant components in the August PPI report. They now expect core PCE at 0.24% m/m and 3.3% y/y, with headline PCE at 0.33% m/m and 3.8% y/y. They highlight BEA methodology changes and anticipate downward revisions to year-on-year inflation but slightly stronger near-term monthly profiles.

TD revises core PCE projections

"PCE-relevant components of August PPI were slightly stronger than we were anticipating, leading to a higher core PCE forecast ahead of CPI. We now look for 0.24% m/m for August core PCE (3.3% y/y) with a stronger 0.33% for the headline (3.8% y/y)."

"Our market-based core PCE forecast is a more subdued 0.18% m/m and would reflect a slight pickup from July."

"Our PCE forecast, and the Fed's September decision, hinges on tomorrow's CPI report."

"Portfolio management no longer comes from PPI, and there is still uncertainty around the BEA's new calculations for it. It will likely be revised lower, but the market may be overselling the magnitude of the negative revisions."

"Overall, we expect a downward revision to y/y inflation, with more positive near-term revisions to the m/m profile."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)