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According to National Bank of Canada analyst, Krishen Rangasam, inflation in the US is well under control, as today Core PCE data showed, probably because firms are under no pressure to boost prices given comfortable profit cushion.

Key Quotes:

“With wages on the rise, one would have expected some cost-push inflation. But after picking up steam earlier in the year, consumer prices seem to be moderating again as evidenced by the core PCE inflation rate dropping in October to 1.8% year-on-year, or below the Fed’s 2% target. The core PCE’s more recent trends should be concerning from the Fed’s standpoint given that the three-month annualized rate sank to just 1.1%, the lowest since May last year.”

“The strong dollar is keeping import prices under wraps and it’s also possible firms, intent in maintaining market share, are opting to absorb rising costs instead of passing them on to consumers.”

“Corporate profits have outpaced wages and salaries over the past decade. Third quarter data, which came out yesterday, was no exception as corporate profits rose to a record US$2.3 trillion or +10.3% on a year-on-year basis, which is more than double the 4.2% increase for wages and salaries.”