United States: Core CPI momentum seen returning in July – TD Securities

TD Securities economists expect United States (US) July Core Consumer Price Index (CPI) to return to trend after June’s one-off weakness. They forecast Core CPI at 0.20% m/m and 2.4% y/y, with Headline CPI at 0.15% m/m and 3.4% y/y, and see upside risks if June’s soft categories bounce more strongly.

July CPI expected to regain monthly momentum

"We expect next week's CPI data to report that underlying inflation rebounded after one-off items dragged the series surprisingly lower in June, with the core expected to rise 0.20% m/m in July. The services segment should be the main driver to the upside, while core goods prices likely added to inflation for the first time in three months."

"Our forecast for July core CPI expects rent and OER to rebound slightly after moderating more than expected in June. Overall, the m/m profile will likely move back in line with its trend before the April adjustment. We look for 0.26% and 0.27% m/m for rents and OER, respectively."

"We project that core CPI rose 2.4% on a y/y basis, down 20 bps vs June; likewise for headline inflation which likely slipped 10 bps to 3.4% y/y. We see the risks to our forecasts as skewed to the upside in the event the bounce back from the one-off declines in June prove to be firmer than we anticipate."

"We expect headline CPI rose 0.15% m/m in July, despite the energy component continuing to act as a drag (gasoline: -2.9% m/m). Conversely, food inflation likely gained additional momentum in July on the back of another increase in grocery prices."

"We expect the core segment to continue to evolve positively through September after cresting in May at 2.9% y/y. Likewise for headline inflation which likely saw its peak for the year at 4.2% in May, but its evolution will remain entirely dependent on the final resolution of the Middle East conflict. We expect both series to resume momentum in Q4."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)