Friday morning US data coming up - July inflation figures - more previews

Author: Eamonn Sheridan | Category: News

I posted previews earlier here: Coming up from the US Friday morning - July inflation figures - preview

More now:

  • US consumer price inflation slowed in recent months, not only on the back of lower oil prices but also because the core rate excluding volatile energy and food prices dropped from 2.3% in January to 1.7%.
  • This has prompted at least some Fed officials to doubt that inflation is on track, i.e. moving towards the central bank's medium-term target. The target level of 2% based on the personal consumption expenditure deflator roughly corresponds to 2.5% for consumer prices. It would thus take another pick-up of inflation pressure for further rate hikes to remain realistic. The release of July's consumer prices ... is likely to be a first minor step in this direction.
  • We are looking for a 0.2% increase on June (consensus: 0.1%), both in the headline as well as the core rate. The year-on-year rate would then move up from 1.6% (headline) and 1.7% (core) to 1.8% in each case.
  • The prices of some goods and services that fell recently are likely to rebound. This applies to air fares, for example, which fell by a total of 5% over the past three months. Hotel accommodation prices are also likely to correct some of June's considerable drop. In the five cases where a similar fall in hotel prices was recorded in recent years, a strong countermove followed in the subsequent month. There is no factual reason for a downtrend in hotel prices anyway given that US hotel occupancy in June was higher than in any June since records began in 2006.
  • At the same time, we are looking for the price declines in used cars to slow, since the Manheim index calculated by wholesalers, which has a roughly three-month lead over the CPI component, recently turned to the upside.

  • For the first time in a long time, the energy sector should have very little bearing on headline CPI. Indeed, even with a near-2% decline in gasoline prices the energy component should come in flat after adjusting for seasonality.
  • We also look for some of the recent quirks (OER disconnect from rents, sharp declines in physician prices, sharp declines in cell phones services) to continue to roll off the sequential CPI results.
  • Accordingly, we see both headline and core advancing 0.2% on the month. This takes the y/y run rates to 1.8% for both as well (from 1.6% and 1.7% , respectively).
  • If gasoline prices maintain their early August momentum, we should see headline CPI revert back to 2% y/y next month. N
  • ote too that other forward-looking indicators of prices (like the ISM prices paid indices) suggest inflation has put in a short-term bottom.