PCE Nowcast – US Energy prices point to hottest reading since 2023
Inflation heats up as energy prices spike
Higher energy prices due to the US/Israel war with Iran will provide the biggest boost to the March PCE index. Our PCE nowcast estimates that year-over-year headline PCE inflation will rise to 3.4%, its highest since September 2023, while core PCE inflation will increase to 3.1%.
We expect core goods prices to rise by a softer 0.2% m/m in March. This masks ongoing strength in computer prices amid rampant AI demand. Tariff-exposed goods prices edged lower last month.
Most of the near-term uncertainty is driven by the path of oil prices. We expect higher oil prices to push headline PCE inflation as high as 3.7% in Q2, before moderating to 3% by year’s end. Gasoline has half the weight in the PCE than it does in the CPI, which is why the peak in PCE inflation will be lower than the CPI’s.
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