Scotia Above Consensus CPI Call

Scotia are modestly above consensus for CPI inflation but note the FOMC’s nimble decisions tend to go down to the frail and rather brittle wire and there may well be plenty of other developments between now and the Sept FOMC.

• Core CPI seen a tenth stronger than consensus at 0.6% M/M but in line at 6.1% Y/Y, keeping to the three-month moving average of sequential inflation and indicate that inflationary pressure remain hot.
• Headline CPI meanwhile is seen rising 0.4% M/M, slowing from 9.1% to 8.9% Y/Y (cons 8.7% Y/Y).
• The Cleveland Fed’s inflation ‘nowcast’ shows inflation running a tenth or two beneath 9% Y/Y and it has been slightly underestimating actual CPI inflation for several months. Further, while some PMIs have been indicating lessening price pressures, small businesses are not.
• Other drivers are somewhat mixed, base effects will shift toward dragging 0.5pp from Y/Y headline and core rates and July is typically a modest month for seasonality.
• Within core, house prices will probably keep OER on the hot side and there is also likely to be an ongoing reopening effect upon prices as pent-up services demand continues to get unleashed. Used vehicle prices could have knocked 0.1pps off headline M/M inflation while new vehicle prices seemed to be fairly flat.
• In volatile items, all-grades retail gasoline prices fell by over 7% m/m NSA and about half that in seasonally adjusted terms whilst the small weight of piped gas should mean minimal drag from Henry hub natural gas prices falling circa 5% M/M NSA. Food-at-home and food-away-from-home are assumed to combine for another gain of around 1% M/M but pressures may be abating.