• Skip to main content
  • FX Product information
  • About Nordea Corporate
  • Research
  • Log in
Terms of use
Disclaimer
Cookies
Accessibility
Privacy Policy
MiFID II and SI Quotes
Corporate Netbank
© 2025 Nordea
Oct 29, 2018, 13:33

US core PCE comment: Slightly above expectations

Anders Svendsen

Core PCE prices increased slightly faster than expected in September, but the overall picture for August and September is still a loss of momentum. With core PCE around target and strong growth, the Fed will continue normalising monetary policy.

  • Core PCE prices increased by 0.2% m/m in September, slightly faster than expected (Nordea and consensus: 0.1% m/m) after a weak core CPI report for the same month. Correspondingly, core PCE inflation remained unchanged at 2.0% - spot on the Fed’s target.
  • Headline PCE prices increased 0.1% m/m and 2.0% y/y, also slightly higher than expected and spot on target.
  • Both core CPI and core PCE prices have showed rather weak momentum in August and September, but we find that most can be explained by temporary factors.
  • The main negative surprises stem from core goods prices in general and apparel prices more specifically. Core services price inflation is still rising, and we expect more increases going forward as wage growth increases.
  • We expect the Fed to continue normalising monetary policy for another year.
Chart 1. Core PCE losing momentum

Chart 2. Core goods vs core services

Chart 3. PCE inflation @ target

Chart 4. Various measure of core inflation at target

Read article disclaimer

Anders Svendsen

EUR rate strategy. Trade ideas. ECB. Inflation. DKK rates.

NEXT ARTICLE

Norges Bank Preview: Guiding for a September cut

More from the International edition

Nordic Economies
Ahead of the Riksbank: Mood enhancer
We expect the Riksbank to cut its policy rate on 18 June. Inflationary pressures have eased and the Riksbank wants to support the economic recovery.
Torbjörn Isaksson
13 Jun
Torbjörn Isaksson
Major Economies
ECB Watch: Done?
The ECB cut rates to 2%, but suggested that barring downside surprises, it may already be done cutting. We hold onto to our forecast that no further cuts will be seen, though risks remain tilted to the downside.
Jan von Gerich
5 Jun
Jan von Gerich and others
13 Jun, 07:33

Norges Bank Preview: Guiding for a September cut

Marketing communication

Norges Bank Watch

Article by Kjetil Olsen

Norges Banks rate path will be lowered next Thursday and the central bank will guide towards a first cut in September

Somewhat lower inflation than expected, lower rates abroad and a Regional network broadly in line expectations mean that Norges Banks rate path will be lowered next Thursday. The new path will indicate two cuts before year end and a decent probability of a cut already in August. Norges Bank will guide towards a first cut in September, however.

At face value, the new information since March could actually have led to a rate cut from Norges Bank already next week. We rule this possibility out. Norges Bank will not think they are in any hurry to lower rates. Yes, inflation is somewhat lower than expected (0.2-0.3pp) but it is still too high. Moreover, core inflation will pick up again this autumn due to base effects and will hover around or slightly above 3% for the rest of the year. At the same time, unemployment is low and growth has picked up to a level close to or even slightly above potential growth. The driver behind this growth-pickup is higher private consumption. Purchasing power increased a lot last year and will increase substantially also this year as wage growth (at around 4.5%) will outpace inflation with a good margin.

From a risk management point of view, Norges Bank will opt to wait. They have highlighted the following trade-offs: “If the policy rate is lowered prematurely, prices may continue to rise rapidly. On the other hand, an overly tight monetary policy could restrict the economy more than needed to bring inflation down to target”. Based on the incoming information about developments in the Norwegian economy, it is hard to argue that monetary policy is currently overly tight. They also know that lower rates will boost growth further, running the risk that further disinflation could stall.

While somewhat lower inflation than expected and lower rates abroad pulls the rate path down, we think they will have a small positive contribution to the rate path from domestic demand. Growth in Q1 was clearly higher than Norges Bank expected (1.0% vs 0.6% q/q). In particular, private consumption was higher and was growing at a rate between 3-4% the first three months of the year. In April retail trade continued strongly up, with 3m/3m annualised growth at 6%. Housing investments also turned slightly up in Q1 while Norges Bank had assumed it would continue to fall the first half of this year and only turn positive from autumn onwards. Furthermore, while the Regional network was broadly in line with expectations, growth in Q3 is expected to be slightly higher (0.1pp) than Norges Bank had in their forecast in March.

In sum, the rate path could be lowered by some 10-15 bp compared to the March path based on the factors above. In that case it would indicate 5 rate cuts by end of next year. However, we do suspect that Norges Bank could revisit their assumption for the neutral rate. This is the dark horse. Over the last two years, they have adjusted up their view twice. In 2023, they said that the neutral real money market rate probably was in the upper part of the range of -0,5/+0,5%. Last year they revised the interval to 0%-1%. Based on developments in the Norwegian economy lately, with growth picking up on the back of stronger growth in the interest rate sensitive sectors, it would make sense to adjust the neutral level. Furthermore, Norges Bank normally pay attention to market pricing when judging what a neutral rate could be. 5y5Y forward rates have been hovering close to 4% for quite some time now, indication a real rate close to 2% and clearly higher than the assumption of Norges Bank. If they do adjust the level for the neutral real money market rate to say 0.5%-1.5%, this would pull the rate path up and lift the end-point. If Norges Bank do not revise their assumption now, we do think they will at some point over the next year. Therefore we do not necessarily believe Norges Bank will deliver very many rate cuts, even if we have to admit that a cut in September now seems much more probable than it did in March.

Read article disclaimer

Norges Bank Watch

Analyses and comments pertaining to Norges Bank's monetary policy meetings.
Ad hoc