UBS Below Consensus CPI Call

UBS are below consensus with a core CPI forecast of 0.43% M/M in July (BBG median 0.5%), below the 0.71% in June and 0.56% averaged since October but still 5.25% annualized.

• They see roughly equal contributions to the slowing on the month from sharply falling airfares (Hopper suggests -20% since late-May), a return to the recent strong trend for other transportation service prices following a down and up swing in May and June, and used cars.
• They view risks as tilted slightly to the downside from a possible greater-than-expected slowing in non-vehicle core goods prices amid falling import prices and elevated inventories at some retailers.
• Other potentially notable estimates include OER seen with a minor slowing to 0.64% M/M and core goods also slowing from June’s pace. Rising wages could force greater increases in this relatively persistent segment of core services ex shelter, medical, and transportation, but the trend has not been clear in recent months.
• Headline CPI is to only see a very moderate monthly increase of 0.14% M/M and with the annual rate slowing from 9.1% to around 8.75% Y/Y.