UBS At Bottom End Of Core CPI Consensus

UBS have one of the lowest estimates for core CPI in June at 0.19% M/M, a rate that would be tied with Aug’21 as the smallest seasonally adjusted increase since the surge in inflation began in Mar’21.

• Used vehicle prices are the main driver for the moderation on the month from 0.44% in May.
• Owners' equivalent rent and tenants' rent are still expected to post an elevated increase in June. However, incoming data continues to show changes for new tenant lease rents at or below their pre-pandemic pace in every month since the fall of last year. CPI rent increases should be on a slowing path, and we expect June CPI rent increases will be a bit smaller than the past few months.
• Additionally, and possibly a reason for their below consensus call, UBS note that current CPI seasonal factors are pushing down their core forecast in June by 17bp more than would be the case with the same not-seasonally-adjusted forecast using the seasonal factors released just prior to the pandemic. The current seasonal factors are particularly negative for airfares, energy goods (gasoline), lodging away from home (hotels), and used vehicles.
• Their assumptions would equate to core PCE slowing from 0.31% to 0.16% M/M in June.
• Headline CPI meanwhile is seen at 0.18% M/M for a small uptick from 0.12% in May. It comes on a smaller drag from energy of -0.1% after -3.6%.