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Nomura: Supercore To Accelerate But Underlying Trend Remains Soft

US OUTLOOK/OPINION
  • Nomura expect core CPI at 0.24% M/M in August (4.35% Y/Y), up modestly from 0.16% in July and 0.158% in June but well below the 0.419% averaged for the first five months of the year.
  • Used vehicle prices likely declined again and rent disinflation continued. However, seasonal adjustment factors for volatile components (e.g., used vehicle prices, lodging-away-from-home prices and airline fares) are more positive than the previous month, pushing them higher on a seasonally adjusted basis. For example, airline fares were estimated at -4.3% M/M NSA but +3.1% M/M SA in August.
  • Considering the sizable pandemic shocks, the seasonality of some of these components might have changed, while the seasonal adjustment factors are slow in capturing newly emerging seasonality.
  • Whilst sensitive to fluctuations in volatile components, they see CPI core services ex rent/OER at 0.39% M/M in August, up from 0.2%. Alternatively, it would mark an acceleration from 0.30% to 0.49% M/M if also excluding health insurance prices.
  • Headline CPI seen at 0.63% M/M (3.7% Y/Y), with energy prices set to jump 5.9% M/M from a double-digit increase in gasoline prices.
  • However, despite the expected modest rebound in core CPI inflation, we believe the underlying inflation trend remains soft. We maintain our view that the Fed will keep policy rates on hold through year-end.
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