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CPI Summary: Another Soft CPI Print Sees Totality Of Data Swing Towards Earlier Cuts

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  • The June CPI report continued a trend of an aggressive reversal of Q1’s surprise strength, ramping up expectations that the July FOMC is used as a launching pad for a September cut (the latter now essentially fully priced).
  • Most recently, core CPI was 0.065% M/M in June (vs average estimates of 0.21%) after 0.16% in May, and supercore CPI printed -0.05% M/M (vs an average 0.27 and a range of 0.15-04) after -0.04%.
  • Whilst the Fed has put focus on supercore in recent years, we feel that the latest CPI housing data were even more notable as a sign of the long-awaited final housing shoe to drop.
  • OER at 0.28% M/M was a full 0.1pp lower than an average of estimates we’d seen beforehand and with a similar story for tenants’ rents at 0.26% M/M – both are below average rates through 2019. After methodological quirks have seen prior strength in OER correctly questioned, the fact tenants’ rents also stepped lower adds weight.
  • Stepping back to look in trend terms, core CPI increased just 2.1% annualized in the three months to June or 3.3% over six months. Supercore’s volatility is evident in recent trends though, at 1.4% over three months vs 4.8% over six months.
  • We wait on latest PCE implications, including after tomorrow’s PPI report, but with PCE metrics typically running softer, the latest data are looking increasingly favorable for the Fed against a backdrop of the unemployment rate in June pushing above the FOMC’s end-2024 forecast.
  • Whilst the FOMC rarely likes to surprise and seems more likely to use July to tee up a subsequent cut, there is still a lot of data to be seen before the Sep 18 meeting, including July and August payrolls and CPI reports.
  • Should these reports continue the recent dovish theme there’s even a chance that a 50bp cut in September sees growing attention, but this can very quickly fade in the event of hawkish surprises as the Fed still looks for a number of months of good inflation data to have the confidence to cut.
  • To be specific, we suspect we’d need to see another sequentially lower core CPI print along with a softening in payrolls growth and/or another shift higher in the unemployment rate for a 50bp cut to really get floated, but there is a path there which we wouldn’t have had said just 10 days ago.

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  • The June CPI report continued a trend of an aggressive reversal of Q1’s surprise strength, ramping up expectations that the July FOMC is used as a launching pad for a September cut (the latter now essentially fully priced).
  • Most recently, core CPI was 0.065% M/M in June (vs average estimates of 0.21%) after 0.16% in May, and supercore CPI printed -0.05% M/M (vs an average 0.27 and a range of 0.15-04) after -0.04%.
  • Whilst the Fed has put focus on supercore in recent years, we feel that the latest CPI housing data were even more notable as a sign of the long-awaited final housing shoe to drop.
  • OER at 0.28% M/M was a full 0.1pp lower than an average of estimates we’d seen beforehand and with a similar story for tenants’ rents at 0.26% M/M – both are below average rates through 2019. After methodological quirks have seen prior strength in OER correctly questioned, the fact tenants’ rents also stepped lower adds weight.
  • Stepping back to look in trend terms, core CPI increased just 2.1% annualized in the three months to June or 3.3% over six months. Supercore’s volatility is evident in recent trends though, at 1.4% over three months vs 4.8% over six months.
  • We wait on latest PCE implications, including after tomorrow’s PPI report, but with PCE metrics typically running softer, the latest data are looking increasingly favorable for the Fed against a backdrop of the unemployment rate in June pushing above the FOMC’s end-2024 forecast.
  • Whilst the FOMC rarely likes to surprise and seems more likely to use July to tee up a subsequent cut, there is still a lot of data to be seen before the Sep 18 meeting, including July and August payrolls and CPI reports.
  • Should these reports continue the recent dovish theme there’s even a chance that a 50bp cut in September sees growing attention, but this can very quickly fade in the event of hawkish surprises as the Fed still looks for a number of months of good inflation data to have the confidence to cut.
  • To be specific, we suspect we’d need to see another sequentially lower core CPI print along with a softening in payrolls growth and/or another shift higher in the unemployment rate for a 50bp cut to really get floated, but there is a path there which we wouldn’t have had said just 10 days ago.