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MNI US Inflation Insight, Sep'23: CPI vs PCE Differences See Stronger Core Faded

EXECUTIVE SUMMARY

  • Headline CPI accelerated to 0.6% M/M as expected in August on a surge in energy prices, but core CPI inflation was stronger than expected at 0.28% M/M (cons 0.2) after two months at 0.16% M/M.
  • There were some large cross currents, but the broad takeaway was upside coming from increases in categories that might not be repeated in core PCE.
  • There was a step back in the progress made in various dispersion and underlying metrics, but nevertheless the market reacted by seeing 2024 rate cuts increase by 7-8bps after a prior disinversion trend.
  • Still, coming ahead of next week’s FOMC meeting and new dot plot, the ~100bp of cuts priced for 2024 is in line with the June dot plot, albeit from about a half hike lower starting point.
  • We expect that 5.6% median 2023 dot to remain in place whilst we currently pencil in a drop in the 2023 core PCE forecasts to 3.5 or 3.6% (vs 3.9% in June's projections) next week.

Please find the full report here:

USInflationInsightSep2023.pdf

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