U.S. April Core PCE Forecast at 0.25% After Softer Import Prices

1. Core Inflation Momentum Moderates, but Year-on-Year Remains Elevated

April core PCE is forecast at 0.25% month-over-month, revised down from the pre-import-price estimate of 0.27%. The downward revision is concentrated in the foreign travel component (Foreign Travel by U.S. Residents), which dropped from +1.18% in March to -0.10% in April due to softer import prices for foreign airfares. On a 3-month annualized basis, core PCE slows sharply from 4.43% in March to 3.70% in April. However, the 6-month annualized rate edges up from 3.70% to 3.74%, and the year-on-year rate holds steady at 3.27%. This divergence—shorter-term cooling but medium-term stickiness—implies the disinflation path remains uneven and heavily reliant on volatile components. Market participants focused solely on the flat year-on-year rate risk missing the near-term momentum shift.

2. The Composition of Disinflation: Services Ex-Housing Leads the Decline

Core services ex-housing inflation falls to just 0.13% month-over-month in April, from 0.34% in March. Key drags: Financial Services and Insurance (-0.27%), Communication Services (-0.20%), and Foreign Travel by U.S. Residents (-0.10%). In contrast, housing services accelerate to +0.52% from +0.27% in March, and food services & accommodations rise to +0.54% from +0.24%. This bifurcation shows that the most rate-sensitive or global-demand-linked service categories are cooling, while domestically-driven shelter and food services remain sticky. The investment implication is that near-term core PCE readings may undershoot expectations if these volatile services continue to soften, but the housing drag will persist and prevent a rapid return to target.

3. Key Risks: Energy, Housing, and Data Reversals

Three risks threaten the benign narrative. First, energy—headline PCE is forecast at 0.42% month-over-month, driven by a 3.84% jump in the energy component. Continued energy upside could spill into core via inflation expectations. Second, housing services at 0.52% month-over-month is the highest since mid-2023. If this persists, core services ex-housing must stay negative to keep core low—an unlikely scenario given the breadth of services inflation. Third, import price volatility: foreign travel data is notoriously noisy; a reversal in May could push core back above 0.27%, negating the single-month improvement.

4. Macro and Market Implications

The forecast supports the Fed’s wait-and-see posture. A one-month 0.25% core print, while welcome, does not change the fact that the 3- and 6-month rates are still above 3.5% and the annual rate is 3.27%. Rate markets may temporarily price in dovish repricing, but the absence of a clear trend means terminal rate expectations will likely remain anchored. For equities, the slowdown in financial services and communication services inflation could signal margin pressure in those sectors—financial sector profitability often correlates with interest income and fee revenues, and deflation in those services suggests headwinds. Overall macro impact is muted, but the key takeaway is that the disinflation process is alive but fragile. Market focus should shift from the flat year-on-year level to the composition and short-term momentum, as the 3-month annualized drop from 4.43% to 3.70% is a material signal that import price channels continue to suppress core inflation.