The Bureau of Economic Analysis will publish its August reading of the Federal Reserve's preferred measure of U.S. inflation Thursday amid signs that a cooling economy, as well as a softening labor market, could tame price pressures over the coming months.
Markets are likely to key on the BEA's core PCE price index, which the Fed considers to be a more accurate representation of consumer price pressures, as well as its estimate of personal income and spending gains in the next-to-last last major inflation reading prior to the Fed's September policy meeting.
Analysts see the July core reading ticking modestly higher from last month -- the lowest since November of 2021 --to a year-on-year gain of 4.2%. The monthly reading is forecast to rise 0.2%, matching the pace of gains in June.
The Bureau of Labor Statistics reported earlier this month that its headline consumer price index ticked higher in July, to 3.2%, while core prices, which strip out volatile food and energy costs, rose 4.7%.
"The CPI is based on households’ out-of-pocket expenditures, while the PC -- the Fed’s preferred inflation measure -- captures the change in the price of all goods and services purchased by households and purchases made on their behalf by third parties," said Ian Shepherdson of Pantheon Macroeconomics. "This results in big differences in the weighting of key components; notably, healthcare is about 18% of the core PCE, but only a tenth of the core CPI."
A softer reading Thursday, following on from a series of job market data releases showing both slowing wages gains and an overall cooling in hiring, could trigger significant changes to the market's current interest rate forecasts.
At present, the CME Group's FedWatch indicates an 88.5% chance that the Fed will hold rates steady at between 5.25% and 5.5% when it meets next month in Washington, but puts a 42.6% chance on a quarter point rate hike in November.
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