We revise inflation numbers but not our monetary policy views on Fed or BoJ

Genevieve Signoret

Prices

We revised down our forecast for U.S. core PCE inflation in 2015 and 2016 and note falling inflation in Japan, while holding our monetary policy outlooks for both the Fed and the Bank of Japan unchanged.

U.S. core CPI inflation held firm

U.S. consumer prices in January were lower than a year earlier. The U.S. Consumer Price Index was down 0.1% y/y in January from 0.8% the previous month. Core inflation remained stable at 1.6%. PCE inflation showed a similar trend, the headline number slowed down to 0.2% while the core—the Fed’s favorite measure for inflation— remained steady at 1.3%. Core PCE inflation is gradually slowing down in trend: in October it was growing at 1.5% y/y.

To incorporate incoming data, we have revised down our outlook for the Core PCE inflation as follows:

Quarterly forecasts under central scenario

Annual forecasts under central scenario

This revision does not change our outlook for Fed policy:

Inflation slowed in Japan

Japan’s CPI continued to slow down. Japan’s core CPI (which excludes energy and food) was down to 2.0% in January from 2.1% the month before. Despite the aggressive monetary policy stance of the Bank of Japan, inflation hasn’t sped up so far, and growth remains subdued.

U.S. headline inflation went negative in January

Energy prices plunged even faster in January

Core PCE inflation is gradually slowing down in trend: in October it was growing at 1.5% y/y

Japan inflation continues to trend down

This new data add support for our view on Bank of Japan monetary policy: