One of the most important indicators monitored by the Federal Reserve (Fed) to define its monetary policy comes out this Friday (26). It is the personal consumption expenditure price index (PCE).
It is, together with the consumer price index (CPI), a very relevant indicator for evaluating price changes in the United States, explained Francisco Nobre, economist at XP, who participated this morning in the XP Morning Call.
“In the current context, it is important to understand the difference between these two indices because lately we have seen a certain divergence in what the numbers are saying”, he stated.
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Significant reacceleration
“In recent times, there has been a very significant reacceleration in the CPI, with the data coming under considerable pressure, especially in the services category,” he stated.
“When we look at the PCE, we also see a reacceleration, but it is not as strong”, he added.
The CPI for March, the latest data from the index, increased 0.40%, above expectations of 0.30%. XP projects a PCE for March, which comes out this Friday (26), of 0.29%.
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He explains that historically the CPI tends to run higher than the PCE.
Distant disinflation
“The conclusion is that this reacceleration that is being seen in the United States, very significant seen in the CPI, which reached 8% in the services metric, in the PCE it is around 4% (in the same item)”, he commented.
“But, the truth is that the data has come under a lot of pressure and the tendency is for inflation measured by PCE to remain high for longer and disinflation tends to take longer (to happen)”, he added.
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“Expectations of the number that will be released tomorrow still point to a high result”, he stated on the program Morning Call.
Far from the inflation target
Nobre further explained that inflation rates have given practically twice the result of what they should be to converge inflation to the target in the USA, which is 2%.
“If the numbers continue to come in very strong for inflation and growth, the probability of an additional increase in interest rates begins to gain traction,” he said.
Francisco Nobre stated that this general scenario translates into high interest rates for longer.
“When you look at Brazil, it tends to be negative. If interest rates stay higher there for longer, this tends to put pressure on the exchange rate here, causing a problem for inflation and for the Central Bank, which is currently cutting interest rates”, he added.
