November PCE inflation report was modest. Core PCE was +0.17% m/m (Fundstrat expected +0.15%), marking the second consecutive modest PCE report and adding to the constellation of “soft” CPI and PPI reports.
We continue to view the 3M annual CPI or PCE as a more accurate metric for assessing inflationary trends. The 3M annual core PCE collapsed to 3.63% versus 5.23% in October and should fall to 2.14% next month.
Curiously, financial services +0.07% from +0.17% growth, or almost half. Where is financial services inflation coming from? Finally, the FOMC’s December 2022 forecast for core PCE inflation remains at 4.8% (the range of FOMC member forecasts was 4.6% to 5.0%), and December 2022 inflation will be 4.2%.
Realized inflation tracks 60 bps below the FOMC forecast.
Surprising divergence from the Fed forecast, is it possible that their data is lagging or inaccurate?
Fed may have stale inflation data due to ransomware attack
The Fed made a statement that contradicts the actual data from September through December. One of my most experienced and respected macro clients (based in New York) suggested that the Fed’s forecasts may have been affected by a cyber-attack on Haver Analytics related to extortion money.
Why? – First of all, take a look at Fed Chairman Powell’s response (in response to Politico’s Victoria Guida):
The PCE core inflation deflator will be 4.2% by 2022, which is -30 bps below the Fed’s forecast in September. This is 60 bps lower than the FOMC’s current 2022 PCE inflation forecast of 4.8%.
Could it be that the Fed data is lagging or incorrect?
Haver Analytics has not updated its database due to a security check
Haver Analytics is widely used on Wall Street to collect real-time economic data. We used Haver when I worked at JPMorgan. At Fundstrat, we have three other data providers.
As shown in the picture, Haver has not updated data since December 13 (which is the day the November CPI was published). Thus, any firm using Haver data will not get the November CPI.
* SEP – Fed spot charts