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SocGen: CPI To Struggle To Fall Below 4-5% In Months Ahead

US OUTLOOK/OPINION
  • SocGen see core CPI slowing slightly to +0.4% M/M in May, in part from continued increases in many travel-related prices, particularly airfares and hotels, although the pace should subside through the summer and later into the year.
  • Headline CPI is seen stronger at +0.6% M/M after a renewed surge in oil prices.
  • SocGen’s forecast and working assumption as they review the upcoming inflation readings is that the Fed will likely slow to a 25bp hike per meeting in Sep and continue to do so until Jan’23. This view remains dependent on inflation peaking.
  • Peaking is subjective though. Year-ago headline inflation may have already peaked at 8.5% Y/Y in March and will fade with base effects but once it drops to 4-5% it will face difficulties beyond that point.
  • Rent and housing costs comprise a large portion of the CPI and are currently rising c. 0.4% M/M; wage and employment trends need to slow in order to bring rent increases back down toward a 3-4% Y/Y pace.
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