by Amid conflicting wage signals and low inflation expectations, core US prices look like rising only gradually to end 2017.Core US personal consumption expenditure (PCE) inflation remained stable at 1.7% year on year (y-o-y) in September, in line with consensus expectations. We continue to believe that core PCE inflation will pick up modestly over the coming months. Our forecast that it will reach 1.9% y-o-y by year-end and 2.1% in December 2017 remains unchanged.Labour market slack has diminished markedly and wage increases have started to pick up, at least by some measures. However, wage inflation remains modest for the time being, and we think the impact of wage increases on overall core inflation should remain muted for now.The global economic backdrop is not conducive to much higher US inflation – quite the opposite in fact. Inflation remains pretty low worldwide, and deflationary forces are still present, limiting pricing power in the US. As for domestic inflation expectations, the situation continues to appear actually quite disturbing, having declined noticeably over the past couple of years.As regards wage inflation, we note that the 3Q Employment Cost Index (ECI) report, generally considered the most reliable measure of wage and salary trends in the US, shows no meaningful pick-up in wage increases. In fact, the y-o-y rise in the ECI decelerated marginally from 2.
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Bernard Lambert considers the following as important: Macroview, US core inflation, US headline inflation, US inflation, US wage inflation
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Amid conflicting wage signals and low inflation expectations, core US prices look like rising only gradually to end 2017.
Core US personal consumption expenditure (PCE) inflation remained stable at 1.7% year on year (y-o-y) in September, in line with consensus expectations. We continue to believe that core PCE inflation will pick up modestly over the coming months. Our forecast that it will reach 1.9% y-o-y by year-end and 2.1% in December 2017 remains unchanged.
Labour market slack has diminished markedly and wage increases have started to pick up, at least by some measures. However, wage inflation remains modest for the time being, and we think the impact of wage increases on overall core inflation should remain muted for now.
The global economic backdrop is not conducive to much higher US inflation – quite the opposite in fact. Inflation remains pretty low worldwide, and deflationary forces are still present, limiting pricing power in the US. As for domestic inflation expectations, the situation continues to appear actually quite disturbing, having declined noticeably over the past couple of years.
As regards wage inflation, we note that the 3Q Employment Cost Index (ECI) report, generally considered the most reliable measure of wage and salary trends in the US, shows no meaningful pick-up in wage increases. In fact, the y-o-y rise in the ECI decelerated marginally from 2.3% in Q2 to 2.2% in Q3.
However, we recognise that other wage measures do seem to indicate some acceleration in wage growth in recent months, notably the Atlanta’s Fed wage tracker. In addition, the unemployment rate is quite low, and most other labour market indicators have improved markedly. Although there is much discussion about how much slack remains in the US labour market, there can be no denying it has diminished markedly. At some stage, this should feed through into wage inflation. We therefore continue to expect wage increases to pick up gradually but we think the impact of wage increases on overall core inflation should remain muted, at least for the coming 12 months or so.