PPI a kick in the teeth for inflation doves

The much stronger-than-expected 0.5% m/m increase in core PPI in January came as a hammer blow for PCE estimates. Coming on the heels of the hot 0.4% m/m increase in core CPI, our calculations now show core PCE up 0.34% m/m, much stronger than we had initially expected. Although that would mean the annual rate of core PCE inflation still edged down to 2.8% last month, markets have now moved to price out a May rate cut by the Fed.