- US core inflation came in fairly tame during July
- Markets continue to scale back Fed hike pricing
- US CPI / core CPI, m/m %, SA, July:
- Actual: 0.074 / 0.215
- Scotia: 0.2 / 0.3
- Consensus: 0.1 / 0.2
- Prior: -0.4 / 0.0
US CPI came and went with little market fanfare. Core inflation landed on the generous side of consensus at 0.215% m/m SA as core goods and core services inflation picked up.
Pricing for the September FOMC meeting slipped and now sits at just 10bps, down sharply from a peak of 27bps toward the end of July. I still think there is merit to receiving. It’s pretty clear to date that markets have been overly aggressive in pricing nearer term hikes as July’s 8bps of tightening was countered by a hold and September keeps getting reduced. The 2-year Treasury yield has fallen by about 15bps over the period since late July to 4.18% now with bonds becoming more and more attractive. Perhaps this illustrates the point that Chair Warsh shouldn’t outsource monetary policy to markets which has merely upped volatility. Just like 2023 with SVB, or the post-GFC period when markets wrongly thought inflation would rip higher.
The three-month moving average of core inflation is now 1.65% m/m SAAR which does not scream hike. June's -0.2% m/m SAAR is straddled by 2.5% and 2.6% readings (chart 1).
Supercore services CPI (services ex-housing services and energy services) did indeed accelerate to +0.2% m/m SA (chart 2). Core goods inflation also picked up (chart 3).
Taking account of weighting differences between CPI and PCE reveals headline PCE tracking at 0.1% m/m SA and core at 0.18% m/m SA. We need select components of tomorrow's PPI to firm up the PCE estimates
Please refer to the chartapalooza on the following pages for more trends including charts that show weighted contributions to y/y and m/m inflation by component. The table at the back offers further detail, micro charts and additional measures.
Watch for the Cleveland Fed’s trimmed mean and weighted median measures plus the BLS figure for the share of the basket estimated by proxy methods.
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