Wednesday will bring November CPI but coming up on Tuesday 11 December 2018 is November PPI
- We forecast final demand PPI to have risen 0.1% m/m in November. We expect energy prices to have fallen sharply, while food prices likely rose for the second consecutive month. In addition, we expect a modest increase for core PPI (excluding food and energy) of 0.2% m/m.
- Based on our forecasts, both headline and core PPI would be up 2.6% y/y.
- We expect headline PPI inflation to soften from its recent trend due to a significant drag from the energy component. We expect to see this weakness in the PCE and CPI price measures as well. Nevertheless, we expect underlying domestic pressures to remain robust, consistent with high capacity utilization in the economy.
- As a result, we expect core producer and consumer prices to continue trending higher next year.
- PPI data, both for headline (+0.1% vs. +0.6%) as well as core (+0.2% vs. +0.2%).
- However, we will be particularly focused on the PPI for selected healthcare industries. The BEA uses this series to estimate the change in prices paid by the consumer for medical services, which has about a 20% weighting in the core PCE deflator, the Fed's preferred inflation metric. The rise in healthcare inflation since its 2015 lows was a key reason why core PCE inflation has converged to the Fed's target. Similarly, the recent 55-bp plunge in the year-over-year growth rate of PCE healthcare services was the main reason why the annual growth rate of core PCE inflation fell by 16 bps (to 1.78%) in the October report. As we pointed out in our outlook piece, healthcare prices play a significant role in our inflation forecast, and thus certainly bear watching.