MNI 5 THINGS: US November Core CPI To Rise 0.2%; Downside Risk

     WASHINGTON (MNI) - The Consumer Price Index will be released Wednesday, and

analysts are expecting overall CPI to be unchanged and core CPI to rise 0.2% in

November.

     Ahead of the release, we outline five themes for particular attention.

--DOWNSIDE RISK TO ANALYST ESTIMATES

     Analysts have forecast a flat reading for this month's headline CPI value.

Their history over the last 20 years suggests that they tend to overestimate

this value when they do miss, having done so ten times by an average of 0.2pp in

the last 20 months of November. Analysts have been on target for this value

seven times and underestimated just three times, by an average of 0.1pp, in 20

years. However, when looking back at just the past ten years, there is an even

split between overestimates averaging 0.2pp and being on target. While analysts

are anticipating a flat reading, November's PPI report showed a sharp decline in

gas prices at the wholesale level that could also be reflected in consumer

prices, creating a downside risk to their already flat estimate.

--CORE CPI GENERALLY ON TARGET

     Analysts tend to be even more accurate in their forecast for core prices.

In the last 20 years, they have been on target nine times, overestimated six

times by an average of 0.1pp, and underestimated five times also by an average

of 0.1pp. And in just the last ten years, they have both overestimated and been

on target four times, while underestimating only twice. Since they have a

tendency to miss to the high side, there is a slight chance of a downside risk

to their estimate for a 0.2% rise in core prices, but still a good chance that

analysts are accurate this month. 

--MARKETS SEE STRONGER CPI GAIN

     Markets are more optimistic in their expectation for a 0.3% rise in the

headline CPI value compared to analysts' flat estimate. Since November 2017,

both markets and analysts have overestimated five times by an average of 0.16

and 0.10pp respectively. Markets have underestimated three times by an average

of 0.17pp compared to analysts' single underestimate of 0.20pp. When looking at

their absolute average misses, analysts, with an average miss of 0.06pp tend to

be more accurate than markets, with an average miss of 0.11pp, indicating that

analysts are more likely to be on target than markets this month. Since markets

tend to overestimate and analysts are expecting a softer report, markets may be

disappointed by November's headline CPI.  

--PPI DATA POSITIVE FOR CORE

     On Tuesday, the Bureau of Labor Statistics released the monthly Producer

Price Index report, which includes a measurement of prices received by producers

of goods meant for personal consumption. The report showed that prices for

personal consumption items fell 0.1% in November, but were up 0.4% excluding

food and energy. This supports the analyst estimate for a flat headline number

and a small core gain in CPI, since the PPI personal consumption measure is a

slightly more volatile indicator than the CPI. 

--AAA DATA POINT TO GAS PRICE DECLINE

     Data released earlier in November from the Automobile Association of

America suggests that retail gasoline prices fell by 20 cents a gallon in

November, lending weight to the analyst forecast for a flat reading for headline

CPI. Additionally, gasoline prices rose by 3.0% in the October CPI report, so

some payback is likely in the November report, as was seen in PPI data.

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com