PCE Deflators Softer In Feb, Including Key Fed Metric

The February PCE price deflators came in on the soft side in February vs consensus:

• Unrounded headline PCE deflator: +0.263% M/M (prior +0.573%, expected +0.3%)
• Unrounded core PCE deflator: +0.300% M/M (to be even more specific, 0.2998% - prior +0.519%, expected +0.4%)
• Note also a downward revision to core PCE prices (Jan to 0.5% from 0.6% prior) as well as the slightly softer-than-expected Feb print of 0.3% (vs 0.4%).
• The Bloomberg-calculated PCE Core Services Ex-Housing - the Fed's favored metric - fell to +0.27% M/M in Feb from +0.48% prior. That's the weakest such reading since a contraction in July 2022 and the second-weakest since Feb 2022.
• Cumulatively, that's a decent miss. With the revisions taken into account the undershoot was on the order of the +0.2% downside read we'd noted in our PCE preview that would be required to move the needle (and indeed, US rates have rallied.)
• The softness in core-core services is notable for giving the Fed scope to pause on May 3, but the April 28 PEC reading will be more definitive in that regard.

Bloomberg estimate of core services ex-housing. Source: BEA, MNI