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Deutsche: Lower CPI Forecasts On Potential Rent Peak, Softer Goods

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Deutsche's inflation forecasts have been lowered on the back of the October inflation print, and they may not be the last analyst to do so:

  • Deutsche forecasts end-2022 Q4/Q4 core CPI of 6.1% (down 0.3ppt), 2023 at 3.6% (also down 0.3ppt), and 2024 unch at 2.6%.
  • Their core PCE forecasts have fallen by a similar amount, to 4.7% (in line w consensus), 3.2% (vs 2.7% consensus), and 2.2% respectively. These forecasts incorporate a recession in H2 2023.
  • Re the downgrade, their analysts cite a potential peak in M/M rents with private estimates of asking rents softening, in addition to broader goods deflationary pressures.
  • One highlight of October's report was the outliers: "the skew of the outliers within core was still to the upside, with the five largest outliers adding almost 40bps to the core print. However, in contrast to previous months, there were meaningful downside outliers" including health insurance and used autos.
  • The downside miss will allow the Fed to follow through on their downshift to a 50bp hike in December. Deutsche's analysts still expect a terminal Fed funds rate of 4.75-5.00% reached in March 2023 (25bps in Feb and Mar).
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Deutsche's inflation forecasts have been lowered on the back of the October inflation print, and they may not be the last analyst to do so:

  • Deutsche forecasts end-2022 Q4/Q4 core CPI of 6.1% (down 0.3ppt), 2023 at 3.6% (also down 0.3ppt), and 2024 unch at 2.6%.
  • Their core PCE forecasts have fallen by a similar amount, to 4.7% (in line w consensus), 3.2% (vs 2.7% consensus), and 2.2% respectively. These forecasts incorporate a recession in H2 2023.
  • Re the downgrade, their analysts cite a potential peak in M/M rents with private estimates of asking rents softening, in addition to broader goods deflationary pressures.
  • One highlight of October's report was the outliers: "the skew of the outliers within core was still to the upside, with the five largest outliers adding almost 40bps to the core print. However, in contrast to previous months, there were meaningful downside outliers" including health insurance and used autos.
  • The downside miss will allow the Fed to follow through on their downshift to a 50bp hike in December. Deutsche's analysts still expect a terminal Fed funds rate of 4.75-5.00% reached in March 2023 (25bps in Feb and Mar).