PCE Inflation Holds Steady Despite Rising Oil Prices

The latest US PCE nowcast from Oxford Economics suggests that inflation is holding steady despite rising global oil prices. According to the report, PCE inflation is projected to remain at 3.7% in August, with core PCE inflation expected to hold at 3.3%. The notable contributors to this core inflation rate include increased airfare and wireless service costs.

The report also anticipates that methodology changes in the upcoming PCE report will reveal a more positive outlook on inflation, potentially reducing core PCE by 0.2 percentage points. However, higher energy prices pose a risk to inflation forecasts, but if oil prices decline, inflation could approach the Federal Reserve's target of 2% by year-end.

Services inflation is showing signs of further moderation, which will be aided by a labor market that is far from overheating. The report indicates that while energy costs have surged, their impact on the PCE index is limited compared to the CPI.