US OUTLOOK/OPINION
Thursday's PPI report for January (0830ET) will, as Chair Powell reminded in his congressional testimony Wednesday, provide the main final input into January's PCE reading.
- Current expectations for the main PPI aggregates are for accelerations in overall M//M to 0.3% (0.2% prior), with ex-food/energy/trade seen up to 0.3% from 0.0% prior.
- We haven't seen analysis on the recalculated Relative Importance and Seasonal Adjustment Factors due for the PPI series which will be released simultaneously with the January data, but obviously this could impact the interpretation of the report.
- It's clear that the stronger-than-expected CPI report has pushed up expectations for the core PCE reading, with PPI likely to play a lesser role at this stage.
- Prominent PCE-related categories that use the PPI reading include airfares which decelerated in the CPI report (1.2% M/M in Jan from 3.0% prior), auto insurance which accelerated in CPI (2.0% from 0.5%), and healthcare services which decelerated in CPI to 0.0% from 0.2% with weak dental services prices. There's no equivalent to PPI / PCE portfolio services in CPI.
- As MNI noted earlier, Nomura revised up their January core PCE expectation to 0.351% M/M vs 0.28% pre-CPI. (As with CPI, the PCE series are due annual revisions as well, somewhat complicating the read-through from pre-compared with-post CPI readings - Nomura sees M/M core PCE revised lower in Nov and Dec by 1-2bp, with October revised up by 1bp)
- For the PCE-relevant inputs from the PPI report, Nomura look for higher portfolio management and health insurance (noting positive residual seasonality in January), with a decline in PPI physician services prices offset by an increase in hospital services.
- Rough consensus for core M/M PCE is somewhere in the mid-0.30% area, though post-CPI estimates vary widely. A figure in that area would mean a lower figure than January 2024's 0.498% M/M, and a softer Y/Y reading of 2.6% or 2.7% vs 2.8% in December.
- JPMorgan is estimating core PCE at 0.27% M/M going into the PPI report.
- TD currently projects 0.38% core PCE.
- Mizuho looks for 0.4% M/M core PPI and 0.5% headline, putting core PCE in the 0.3-0.4% range.
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