US: Core PCE deflator in line with expectations in January - Natixis

Research Team at Natixis explains that the US nominal spending increased slower than expected in January, with as a result a weaker than expected real spending but the disposable income continued to increase at a comfortable pace while the core PCE deflator, the inflation metric the Fed is monitoring, remained at 1.7% YoY, in line with expectations.

Key Quotes

“Nominal personal spending increased less than expected in January: +0.2% versus +0.3% for the consensus. Yet, the nominal disposable income continued to increase at a hefty pace (+0.4% MoM). Given the evolution of prices during the month, real spending was also weaker than expected (+0.3% MoM).”

“Report was also widely expected because it contains the Fed’s official metric for its inflation target. The PCE deflator reached 1.9% on a yearly basis while the core PCE deflator remained at 1.7% in line with expectations.”

“In short, slightly disappointing report on the consumer front which may weight on Q1 GDP estimates. Yet, looking at the dynamic of the disposable income and confidence, prospects remain positive. Meanwhile, the PCE deflator is getting progressively closer to the Fed’s target which could be used as an argument by Yellen to justify another rate hike in March.”