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Citi: Even A Core CPI Miss Could See 75bp Hike

US OUTLOOK/OPINION
  • Citi see core CPI inflation at 0.36% M/M and headline -0.1% M/M in August.
  • At this point, even a weaker reading (e.g., a large decline in used-car prices delivering closer to zero monthly core inflation) could still be consistent with a 75bp hike on Sep 21 after Brainard suggested it would take “several” (more than two) months of softer inflation data to convince her that inflation has slowed.
  • They believe that cooling core goods pressure from easing supply chains, waning domestic demand and lower commodity prices will exert a disinflationary force in coming months, but risks are to the upside.
  • Shelter should in time respond to higher mortgage rates and so it is other services, and by extension wages, that will determine whether underlying inflation remains above-target. The Atlanta Fed Wage tracker indicates wage growth just below 7% - far higher than the 3-4% that might be consistent with 2% price inflation.

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