PRIMER - US PCE inflation data is due at 13:30BST/08:30EDT

The consensus looks for core PCE, the Fed’s preferred inflation gauge, to rise 0.2% M/M, with the annual rate falling to 3.3% Y/Y from 3.4%. Headline PCE is expected to fall by -0.1% M/M, and the annual rate is expected to fall to 3.7% Y/Y from 4.1%, marking the first easing since the start of the US-Iran conflict. With the June CPI and PPI reports in hand, econometricians model core PCE rising by between 0.17-0.19% M/M; that would leave the annual rate at 3.3% Y/Y, down by one-tenth. Headline PCE is expected to slow to 3.7% Y/Y (from 4.1%). Core CPI was broadly flat in June, while lower energy prices pulled the headline rate down. The energy drag is likely to be less pronounced in PCE than in CPI or PPI given that energy carries a smaller weight in the PCE basket. Even so, declines in motor fuel and fuel oil should still help lower the headline reading. Core PCE is likely to run somewhat hotter than core CPI, however; software prices have a larger weight in the PCE basket, while portfolio management fees may add further upward pressure. Cheaper apparel, softer rents and the fading effect of World Cup-related hotel prices should provide some offset, but probably not enough to outweigh those pressures. The read for policy implications is difficult to judge; the FOMC’s July statement was almost unchanged, and the post-meeting press conference with Chair Warsh failed to provide any useful insight. The message of data dependence was reiterated. However, markets reacted curiously: some suggest the Warsh’s message was less hawkish (despite three dissents for rates to remain unchanged, with three members calling for a 25bps hike) than expected (perhaps some paring of the hawkishness markets were pricing ahead of the confab); short-dated yields and the USD fell, while longer-term yields and inflation expectations rose. Others have argued that the reaction reflects uncertainty over whether the Fed is relying on markets to tighten conditions without raising rates itself.