The PPI components that feed into PCE were, on the whole, a touch softer than we had assumed going into the release, lowering our estimate for the monthly rise in the core deflator to 0.29% m/m. This slightly eases the pressure on the Fed to take drastic action following this week’s unexpectedly strong consumer price report. Even so, core PCE inflation is still likely to rise to 3.2%, from 3.1%, confirming that the Fed has more work to do and may need to tighten policy more quickly than we currently expect. At this stage, consecutive hikes in December and January look like the most likely path for policy.
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