No Whammies From Inflation Data

Today brings two new updates on inflation.  Core PCE inflation came in at 4.6 vs 4.7% forecasts, down from a 4.7% level previously.  This isn't nearly as big of a market mover as the CPI data out 2 weeks ago, but a big deviation could nonetheless have an impact.  In this case, we have a small deviation and a favorable one.  Later in the morning, the inflation expectations components of the consumer sentiment data were also inoffensive to fans of low rates with the 1yr level dropping 0.2 and the 5yr outlook rising 0.1.

One common question regarding the PCE inflation data concerns its relative level of impact.  The Federal Reserve occasionally mentions that PCE is its preferred gauge of broad inflation, but we rarely see PCE elicit a big response in the bond market.  The reason for this is simple: it comes out two weeks after the substantially similar CPI data.  While the indices themselves can vary in terms of outright levels, the direction of movement is extremely well aligned. Both show decades-high inflation beginning to recede at a cautious pace.