Some analysts warned not to expect how much the inflation situation will improve; there is an upward risk of inflation.
The Zhitong Finance App learned that the inflation index favored by the Federal Reserve will hit hard tonight. Economists expect the US PCE price index to grow 2.6% year on year and 0.3% month on month in February; the core PCE price index will increase 2.7% year on year and 0.3% month on month in March.
However, some analysts warned not to expect how much the inflation situation will improve; there is an upward risk of inflation. Allianz Trade (Allianz Trade) economist Dan North said, “PCE and core PCE for the past three months have gone the wrong way. They're actually rising. So that's why I think the Fed is adamant that it is still far from what it wants to achieve.” He expects both PCE and core PCE to increase 0.4% month-on-month in March.
Higher gasoline prices are expected to drive up overall PCE data, while transportation services and financial services will drive up overall PCE data and core PCE data. Furthermore, housing costs remain high. Dan North said that although some market conditions have weakened, especially rents in parts of the US, these factors have not yet been reflected in PCE and CPI calculations.
Michael Kramer, head of the Mott Capital Management investment group, also believes that there is an upward risk in the upcoming inflation data. He said: “Although PCE predictions are nothing to worry about, there is anecdotal evidence that these predictions may be too low. Inflation rose more strongly in the first quarter, and price increases accelerated in March.”
Michael Kramer said that if the PCE data and first-quarter GDP are better than expected, then the two-year US Treasury yield may reach 5.25%. “Hopes to cut interest rates in 2024 may be completely dashed, and a new rate hike may be included in discussions.” However, according to data released on Thursday, the initial value of the US real GDP annualized quarterly rate for the first quarter was 1.6%, far below market expectations of 2.5%, which is a sharp drop from 3.4% in the fourth quarter of last year. Meanwhile, the initial annualized quarterly rate of the US core PCE price index for the first quarter was 3.7%. The increase was higher than expected, indicating that inflation is still sticky.
Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance, said the data released on Thursday sounded a wake-up call for some. “This data is the worst — economic growth is slowing while inflationary pressure continues.”