The price data released this week suggest that inflationary pressures are proving stronger than the Fed anticipated. Based on the combined CPI and PPI data, we calculate that the Fed’s preferred core PCE deflator price measure increased at an above-target rate for the second month running in October, by a larger 0.32% m/m – or 3.9% annualised. That would leave the annual rate of core PCE inflation on track to average 2.8% in the fourth quarter, compared to Fed officials’ median projection from September of 2.6%.
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