US DATA
One question that has emerged from the hotter-than-expected March CPI data is how well it will translate into the Fed's preferred PCE measure (due out April 26). Some initial post-CPI estimates of March core PCE eye 0.3% M/M (Citi, Wrightson ICAP), in other words lower than the core CPI print (0.36%). JPMorgan is now pencilling in 0.26% which would be exactly the same as February's PCE print.
- As we wrote earlier, auto insurance and medical care inflation were arguably the biggest upside surprise factors in the strong core/supercore CPI readings, so it's worth noting that the PCE equivalents might tell a different story. The divergence between the two has been a key theme, with core PCE printing 0.26% in February, with supercore at 0.18% (vs CPI equivalents of 0.36%/0.47%, respectively).
- PCE vehicle insurance has been running much softer than its CPI equivalent, which surprisingly hit a 44-month high in March (+2.58% M/M after +0.85% in Feb), alone adding 0.09pp to core CPI. PCE vehicle insurance rose 0.17% in Jan and 0.15% in Feb.
- The strong CPI healthcare reading, which added 0.05pp to the core M/M reading in March on a 0.56% M/M rise (was -0.05% in Feb), could also look different in the PCE report, which has a very high weighting in core for healthcare services (which rose 0.62% in Jan and 0.18% in Feb).
- This raises the stakes for PPI release Thursday which will include components that translate into healthcare services, airfares, and portfolio management.
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