US: Focus on the PCE inflation figures in NFP week – Danske Bank

Research Team at Danske Bank, suggests that today, focus is on the US PCE inflation figures.

Key Quotes

“The Fed's preferred measure for core inflation - PCE core inflation - is due for release and we estimate the index rose 0.1% m/m in July, implying an unchanged core inflation rate of 1.6% y/y. The figure has been around this level in 2016 up from 1.3% y/y in mid-2015. It is thus closing in on the Fed's inflation target of 2% but so far it is not there yet. Core CPI inflation has been above 2% for nine months.

Later this week, the US labour market report is due for release and based on the latest Fed communication it will be very important for the Fed's rate decision. We expect job growth of 175,000 in August. This is below the prints of the past two months but still above the amount needed for labour market slack to come down. Last week, Janet Yellen specifically refereed to the 3M average for job growth. Hence, it seems to be the most appropriate measure to look at when judging how the Fed evaluated employment growth. Overall, the probability of a rate hike this year has clearly gone up and we will review our own forecast of a hike in June 2017 after the job report on Friday.

This week, there will also be focus on the euro area inflation figure for August.”