US OUTLOOK/OPINION
- There is broad analyst consensus for core goods deflation to continue in August but at a slower pace than was the case in July, in large part down to a smaller decline in used car prices. A rough average is for a circa -0.1% M/M print after the -0.3% in July.
- Core goods ex-used cars meanwhile fell back into deflation with -0.09% M/M in July (a third monthly decline in the space of five months) with apparel at -0.45% M/M one particular factor.
- It was a third monthly decline in the space of five months, but mild deflation is nothing new for this category having averaged -0.04% M/M since Apr’23.
- This weakness has been sustained despite a succession of stronger core PPI prints.
- Further, the NY Fed’s GSCPI ticked up from -0.03 to +0.20 in August (above the 0.18 in Nov’23 for its highest since Jan ’23). That’s still very low compared to the extreme supply chain pressures seen in 2021 and less so 2022, but it’s also a sizeable shift from -1.0 standard deviation below its historical average as recently as April.
Those two factors suggest risk is tilted towards a modestly stronger core goods prices print even when excluding used cars than compared to recent months, something that is supported by anecdotal evidence on increases in input prices. That said, a further deceleration here would be all the more notable in another sign of reduced pricing power.
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