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Soft inflation figures point to easing in Fed's preferred inflation gauge - BofA

Published 06/14/2024, 05:32 AM
© Reuters

Investing.com -- Softer-than-anticipated U.S. producer and consumer price data this week suggests a cooling in the personal consumption expenditures (PCE) price index later this month, analysts at Bank of America have predicted.

On Thursday, a Labor Department report showed that producer prices unexpectedly decreased on a month-on-month basis in May, dragged down by in large part by a decline in the cost of gasoline. The numbers, which came after weaker-than-expected consumer price data on Wednesday, were interpreted as the latest sign of a possible easing in inflationary pressures in the world's largest economy.

"[D]isinflation is the most likely path forward," the Bank of America analysts said in a note to clients on Thursday.

The analysts argued the trend may be further underlined by the release on June 28 of the PCE price index, which is typically closely monitored by Federal Reserve officials.

They predicted that the so-called "core" PCE, which strips out volatile items like food and fuel, will increase by an unrounded mark of 0.16% on a monthly basis in May, slowing down the year-on-year gauge to 2.6% from 2.8% in April.

The headline PCE reading, meanwhile, likely rose by 0.06% month-on-month and 2.6% in the 12 months to May, they said. In April, the figures registered 0.3% and 2.7%, respectively.

However, the projected PCE slowdown is not tipped to persuade the Fed to revise its recently updated outlook for just one interest rate reduction this year. The central bank had previously forecast three cuts in March, but several policymakers have since flagged concerns that inflation may remain stubbornly elevated above their 2% target level.

While the BofA analysts said a cut may be rolled out as soon as September, they believe one in December is more likely.

"[T]he Fed will need to see more than just a few months of favorable inflation data to gain enough confidence to ease," the BofA analysts said.

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