All articles 199

12 22 2016 | by Victor Xing | Economics

November PCE: dollar strength weighed on goods inflation

November PCE

November Personal Consumption Expenditures grew at a slower-than-expected pace of 1.372% YoY vs. 1.5% consensus.  The decline was led by soft reading in the goods sector as dollar strength continued to weigh on prices of import goods.  Nevertheless, momentum for services inflation also cooled to push Core PCE to 1.647% vs. 1.769% prior.  The following chart shows dollar strength (yuan weakness relative to the dollar) as a source of dis-inflationary pressure via the import channel:

November PCE

November PCE, year-over-year changes:

  • Headline PCE at 1.372% vs. 1.5% consensus and 1.437% prior
  • Core PCE at 1.647% vs. 1.7% survey and 1.769% prior
  • Services at 2.399% vs. 2.452% prior
  • Durable goods at -2.539% vs. -2.354% prior
  • Goods at -0.754% vs. -0.664% prior
  • Energy at 0.845% vs. -0.130% prior

November PCE

Month-over-month changes

  • Headline PCE at 0.041% vs. 0.2% consensus and 0.260% prior
  • Core PCE at 0.004% vs. 0.1% survey and 0.131% prior
  • Services at 0.145% vs. 0.199% prior
  • Durable goods at -0.453% vs. 0.040% prior
  • Goods at -0.176% vs. 0.386% prior
  • Energy at 1.267% vs. 3.790% prior

November PCE

The latest data highlighted the importance of dollar valuation to realized inflation and inflation expectations.  Similar to Bank of England’s dilemma of trying to ease amid weakening currency (boosting inflation when weaker currency already elevated costs of imported goods), optimism by the Federal Reserve has triggered a dollar rally and declines in goods inflation via the trade channel.  Future policy direction will likely depend on Fed’s responses to dollar valuation as well as PBOC’s reactions on “pent up depreciation pressure.”

Next article12 14 2016 | by Victor Xing | Central Banks

A less-hawkish interpretation of the December FOMC