US inflation data due Thursday 12 July 2018 - preview
US CPI is due today, coming up at 1230GMT
What to expect from:
- We expect a rise of 0.2% on the previous month (consensus: 0.2%) for both headline inflation and the core rate ex. energy and food.
- Shifts in the prices of individual commodity groups have probably balanced each other out: wholesale prices for example signal a smaller decline in used car prices, while prices for hotel accommodation have surged recently, which points to a counter-movement.
- As in May, the year-on-year CPI rate would then be 2.8% (headline rate) and 2.3% (core rate). This would suggest that inflation has not changed on the basis of the PCE deflator either - these figures are published at the end of the month.
- Higher US tariffs could also push prices up a little in the coming months, as shown by the effect of one of President Trump's first measures, the 20% tariff imposed in January on imported washing machines. Washing machines were in fact almost 18% more expensive on average in May than in March, making the year-on-year comparison positive again for the first time since 2012 . With all major household appliances accounting for only 0.08% of the consumer price index, the inflation rate has barely moved but this could soon change if the tariffs on cars announced by Trump do become reality.
- After rising by 0.17% MoM in May, we expect core CPI to increase by 0.18% in June, keeping YoY inflation at 2.2% (although it is very close to rounding up to 2.3%).
- Core goods inflation might see some improvement.
- Limited industry data so far show a stabilization (instead of further deterioration) in used vehicle prices, and apparel inflation has stayed relatively muted after some volatility earlier this year. Hotel prices could moderate after a sizable increase in May and we expect rent and owners' equivalent rent to remain unchanged.
- Inflation in other services, which contributed to the solid performance in May, should continue to support core CPI.
- Headline CPI should rise by 0.2% MoM as well. Due to an easy base comparison, this would lift YoY inflation further to 2.9% from 2.7%.
- Energy is a slightly positive factor this month and we expect food inflation to rise in line with its run rate in the past few months (0.15% MoM).
- In our view, recently announced tariffs introduce only small upside risks to consumer prices and we do not expect to see their impact in the June CPI report. Most measures of inflation expectations are still muted, and the Fed has announced they would tolerate a mild and temporary overshoot of the inflation target, so a June report in line with our forecasts should not change the outlook for monetary policy.