LIVE MARKETS-High US inflation expectations not concerning just yet: Citi

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HIGH US INFLATION EXPECTATIONS NOT CONCERNING JUST YET: CITI

Friday's Personal Personal Consumption Expenditures (PCE) index for January, the Federal Reserve's preferred inflation measure, will be the big focus this week.

The consensus forecast was for a PCE monthly index of 0.3%, unchanged from the level in December, according to a Reuters poll, while the core number is seen rising 0.3%, up from 0.2% in December. On a year-on-year basis, economists expect PCE to rise 2.5%, down from 2.6% the previous month.

But analysts at Citi believe PCE is on the way down. It writes in its latest research note that January's data is likely to be a "clear indication that inflationary pressures have broadly eased relative to this time last year." The U.S. bank continues to estimate core PCE around 2.3% in the fourth quarter of 2025, lower than the same period in 2024.

The U.S. bank, however, does acknowledge higher inflation expectations as pointed out in the University of Michigan survey for February, which showed a 3.5% inflation outlook.

Citi says that's not too concerning.

"February data reflects the height of tariff concerns and while 3.5% is a new high in official data, a methodology change suggests caution in comparing to data prior to 2024," Citi points out.

It adds that Manheim used car prices fell in early February data, suggesting that strength in used cars in the CPI index "should be short lived", while both rent and home price data suggest "continued and sustained easing in shelter inflation."

(Gertrude Chavez-Dreyfuss)

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