US: Core CPI inflation to increase by 0.2% m-o-m in July - Nomura

Analysts at Nomura expects US core CPI inflation (excluding food and energy) to increase by 0.2% (0.202%) m-o-m in July.

Key Quotes

“This forecast implies a slight acceleration from moderate increase of 0.1% (0.119%) m-o-m in June which was in line with our forecast of a 0.129% increase but slightly lower than the market consensus. On a year-over-year basis, our forecast is equivalent to a 1.8% (1.788%) increase, a slight pick-up from 1.703% in June. Our forecast reflects our view that core goods prices would likely be little changed in July although they may not fall as much as they did in June. Among core goods components, industry data suggest that new and used vehicle price inflation may remain subdued amid high inventories and slower sales. However, apparel prices, which fell for the fourth consecutive month in June, may rebound in July partially owing to the series’ mean-reverting tendency. That said, an increasing share of online apparel sales may continue to exert downward pressure on apparel prices in the medium term as deep discounts often accompany online sales to attract consumers amid heated competition among retailers.”

“On the service side, we think that a pick-up in core service prices would offset the weakness in core goods price inflation. In particular, prices of lodging away from home may rebound after a sharp 1.9% decline in June. Considering industry data, we also expect an upswing in the inflation of airline fares, another volatile component, which fell 2.7% in June. On rent prices, we expect a steady increase but don’t expect any material acceleration in its inflation in July.”

“Combining core CPI inflation and noncore components, we expect headline CPI index to increase 0.2% (0.196%) m-o-m. Our forecast of CPI NSA is 245.019. This forecast is equivalent to a 1.8% (1.825%) y-o-y, a decent acceleration from 1.633% in June. An expected recovery in energy price inflation contributed positively to our forecast. Moreover, based on a solid gain in prices received at farms, we expect a decent increase in prices of food at home. With trend-like increases in food-away-from-home prices, we expect a healthy increase in CPI food prices.”