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US OUTLOOK/OPINION: MS Eye Partial Correction Of August’s Temporary OER Boost

US OUTLOOK/OPINION
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  • Morgan Stanley see core CPI at 0.26% M/M in September, translating to 0.19% M/M for core PCE.
  • “Goods inflation moves into positive territory on used cars [0.4%], and airfares inflation remains positive. Services inflation decelerates as shelter steps down. We think the upswing in OER last print was in part noise and may reflect a temporary push from seasonal factors, we expect partial correction.”
  • They see OER at 0.35% M/M and primary rents at 0.33% M/M.
  • They see core services ex-housing at 0.32% M/M after 0.33% M/M in August.
  • “Used cars carry a lower weight in core PCE and, therefore, their acceleration has a lower impact on PCE inflation relative to CPI. In terms of the PCE components that do not come from CPI, we expect acceleration in health services CPI after two weak months, but softer financial services and airfares.”
  • Their core PCE forecast would see a three-month rate 1.94% after 2.06% in Aug and six-months at 2.1%.
  • “We think the Fed will continue to normalize interest rates. A still solid labor market points to two 25bp cuts in November and December this year.”
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  • Morgan Stanley see core CPI at 0.26% M/M in September, translating to 0.19% M/M for core PCE.
  • “Goods inflation moves into positive territory on used cars [0.4%], and airfares inflation remains positive. Services inflation decelerates as shelter steps down. We think the upswing in OER last print was in part noise and may reflect a temporary push from seasonal factors, we expect partial correction.”
  • They see OER at 0.35% M/M and primary rents at 0.33% M/M.
  • They see core services ex-housing at 0.32% M/M after 0.33% M/M in August.
  • “Used cars carry a lower weight in core PCE and, therefore, their acceleration has a lower impact on PCE inflation relative to CPI. In terms of the PCE components that do not come from CPI, we expect acceleration in health services CPI after two weak months, but softer financial services and airfares.”
  • Their core PCE forecast would see a three-month rate 1.94% after 2.06% in Aug and six-months at 2.1%.
  • “We think the Fed will continue to normalize interest rates. A still solid labor market points to two 25bp cuts in November and December this year.”