1Daniel Silver (1-212) 622-6039daniel.a.silver@jpmorgan.comJPMorgan Chase Bank NAPhoebe White (1-212) 834-3092phoebe.a.white@jpmorgan.comJ.P. Morgan Securities LLCNorth America Economic Research & Rates StrategyGlobal Data Watch05 February 2024J P M O R G A Ninflation to continue to behave differently between the CPI and PCE price measures—core CPI run rates should slow sig-nificantly in 1H24 relative to 4Q23, while we expect some modest firming in core PCE inflation. For the core CPI, we expect slowing from a 3.3%3m, saar as of December to 2.7% as of June (Table 1); for quarterly run rates, we forecast 3.1% growth in 1Q and 2.6% in 2Q following a 3.4%saar jump in 4Q23. Meanwhile, we expect core PCE to reaccelerate mod-estly, with the quarterly run rate rising from 2.0% in the last two quarters to 2.2% in the first two quarters of 2024.We believe that the unwinding of supply chain shocks has been an important driver of the “immaculate disinflation� observed in recent quarters. But these tailwinds appear to be fading, suggesting we will likely need a softer labor market in order for inflation to remain close to target on a sustainable basis. Nonetheless, a few factors should support further disin-flation in the near term. Though the pace of core goods defla-tion from recent months is unlikely to be sustained over the medium term, the core goods basket is likely to be held down in the near term by a further leg down in used car prices, and rent inflation should continue moderating through the sum-mer. With these factors weighing more on CPI inflation than PCE inflation given differences in relative weighting, we expect these broader measures to behave differently in the short run. While there are a lot of moving pieces in the CPI-PCE wedge, the Fed sees its inflation objective solely in PCE terms. At his most recent post-FOMC press conference, Chair Powell men-tioned the PCE measure several times but didn�t discuss the CPI measure. If our forecast is correct, year-ago core PCE inflation could dip below 2.5% as soon as the February report (released in late March). This should bolster Fed confidence that inflation is sustainably moving toward 2%. We continue to see the first cut at the June FOMC meeting, but there is a clear chance it could happen as soon as the May meeting. Core goods deflation won�t last foreverDeclining core goods prices have been a noteworthy part of the recent downshift in inflation, with the core goods CPI falling 1.6% saar over the last three months of 2023 after increasing at a 4.6% annualized rate over the preceding 36 months. Easing supply chain constraints have been a big part of this recent trend. Additionally, as our colleagues note, Chi-na�s export deflation likely played an important role in driv-ing global core goods prices lower over the second half of last year, though this...
