US Core PCE Preview: Forecasts from six major banks, a welcome step lower

We expect the core PCE deflator to take a welcome step lower to 0.2% MoM after months stuck well above target. Headline inflation is likely to grow 0.2% MoM, with YoY inflation stepping lower to 3.1%. Gradual disinflation in shelter should weigh on the run rate of PCE in the coming months. However, shelter is a smaller weight in PCE than CPI inflation, and more limited progress on other core services, which are a higher weight, could keep PCE stickier than CPI later in the year. 

We expect core PCE inflation to decelerate by another tenth to 0.2% MoM in June, matching the core CPI's gain. We look for the YoY rate to slow to 4.2% – its weakest pace since Q321. Importantly, we expect the key core services ex-housing measure to post a 0.3% MoM gain in June, which is up from 0.2% in May but still the second lowest MoM increase since July 2022. 

The annual core PCE deflator may have progressed 0.2% in June, a result which should translate into a 5-tick decline of the 12-month rate to 4.1%. Although still high, this would still be the lowest rate observed in 21 months. 

The PCE and core-PCE deflators should match the 0.2% MoM gains posted by the CPI for June. 

Core PCE inflation should rise 0.21% MoM in June based on elements of CPI and PPI inflation. Slowing shelter prices and falling used car prices in CPI in June, dynamics which will very likely continue over the coming months will weigh on core PCE.

We look for the PCE deflator to rise by 0.2%.