At 8:30 PM Beijing time on Friday, the US will release its January PCE price index. The market expects the PCE data to show a year-on-year increase of 2.9%, consistent with the previous value, and a month-on-month increase of 0.3%, a slowdown from last month's 0.4%. On the core side, the market expects the core PCE price index to accelerate slightly to 3.1% year-on-year, the largest increase since April 2024, while the month-on-month increase remains unchanged at 0.4%. As the US Bureau of Economic Analysis's flagship data, the PCE price index directly references CPI data for several price categories. Following the release of the latest CPI data, economists quickly raised their forecasts for the February core PCE price index, to be released on April 9th. Several economists predict the index will rise by 0.4% for the second consecutive month, and some are even prepared for a larger increase. The Trump administration has been using the CPI report extensively, claiming that price pressures are under control and that the Federal Reserve should cut interest rates significantly. Hawkish figures within the Federal Reserve countered by pointing to the PCE indicator, arguing that the inflation rate is still a full percentage point above policymakers' 2% target. Bank of America economists also directly stated that while CPI data is moderate, PCE inflation does not provide a stronger reason for interest rate cuts, especially considering the upside risks from oil prices. This puts the Fed in a real dilemma. A weakening labor market should support rate cuts, but if PCE remains strong and energy and food price shocks from war arrive simultaneously, officials will find it difficult to find a reasonable excuse to restart the easing cycle. (Jinshi)
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