MNI 5 THINGS: US June Core CPI To Rise, Pushing Y/Y To 2.3%

By Sara Haire, Shikha Dave, and Harrison Clarke

     WASHINGTON (MNI) - The Consumer Price Index will be released Thursday, and

analysts are expecting both overall and core CPI to rise 0.2% in June.

     Ahead of the release, we outline five themes for particular attention.

-- HEADLINE CPI NOT LIKELY TO SURPRISE

     Analysts' headline CPI forecasts for June are fairly accurate. In the last

ten years, analysts' expectations for the headline CPI have been accurate six

times. The remaining misses were evenly split between upside and downside risk.

Even when they do miss, in the last ten years, the average underestimate is

0.1pp while the average overestimate is also 0.1pp. As a result, if headline CPI

does not come in as expected at 0.2%, the miss is likely to be relatively small.

-- HISTORY SUGGESTS NO UP OR DOWNSIDE RISK

     Analysts' core CPI forecasts are also very accurate, with no clear upside

or downside risk for June. In the last ten years, while analysts have hit core

CPI on target four times, when they do miss, it has been to the low side ,

overestimating two times vs underestimating four. However, more recently in the

last five years, analysts have hit the target three times and overestimated

twice, indicating that analysts are less likely to miss, but if they do, it'll

likely be an overestimate. If analysts' 0.2% month/month forecast is accurate,

this would set year/year to rise to possibly push into 2.3%. If the month/month

is precisely a rise of 0.2%, the year/year would be 2.269%, a low 2.3%.

-- MARKETS AND ANALYSTS AGREE ON 0.2%

     Market participants and analysts both expect CPI to rise by 0.2% in the

month, as they did in May. In the last year, markets have missed the mark nine

times while analysts have only missed seven times. While markets miss only

slightly more than analysts do, when they do miss, their misses tend to be

larger with an absolute average miss of 0.15pp, whereas analysts' average miss

is 0.06pp. Analysts and markets are in agreement on June, a relatively uncommon

occurrence. This only happened twice in the last year and the were on target

only one of those times. Given that both markets and analysts are estimating the

same value, there is no clear indication as to whether there is an upside or a

downside risk. However, when considering analysts' track record, it is likely

that if there is a miss, it will be very small.

-- REBOUNDS TO STABILIZE CPI

     The headline and core CPI are expected to rise by 0.2% in June, supporting

analysts' predictions that inflation will gradually increase. Drivers behind

this increase include rebounding medical costs after an unexpected decline in

May and steadily increasing food prices, which should balance out a slight

decline or flattening in gasoline prices for the month. However, according to

Wednesday's PPI report, food prices substantially declined, which could suggest

a downside risk for the food component of CPI. Core goods may improve as

components that have been dragging for months, including used cars, are likely

to see rebounding prices. Additionally, after months of volatility in apparel

prices, analysts expect stabilization in this category that could provide

strength in June.

-- BREAKING EVEN ON ENERGY

     Fuel oil, gasoline, and motor fuel can be expected to be the main drivers

of the energy index in June. The usual summer increases may be muted due to

recently announced production hikes in OPEC member nations. This could

potentially reverse the larger gains in energy in April and May. However, the

rally in WTI prices in the last week of June following the news that the

proposed production hike would not be as steep as expected may have pushed up

the average monthly price, allowing it to hold roughly steady. Additionally, a

0.8% gain in the June PPI for energy suggests that this may be the case.

Analysts believe the increase may not be large enough to impact the month/month

change considerably, though the year/year percentage change is bound to trend

higher due to upward pricing pressures for energy components across the board.

Energy prices rose by 0.7% unadjusted in June 2017 before falling by 1.0% in

July.

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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