Wells Fargo: CPI Miss Favors "Transitory", But Watch OER

Wells Fargo saw the July CPI report details as having "favored the view that the recent degree of inflation will not last, as prices in categories most closely associated with the economy's reopening and supply constraints have begun to ease." They note in particular travel-related services and a marked slowdown in used car prices.

• "Team Transitory", as they put it, still has some things to consider though: "there was also evidence that price pressures continue to broaden out, which should keep the heat turned up on inflation for a while."
• In particular, Wells Fargo sees shelter prices applying upside pressure to overall CPI going forward: "With OER lagging [home] sale prices by roughly a year and a half and the inertia in this category, we expect shelter costs to be an increasing source of inflation ahead."
• With "supply logjams" and weak productivity growth, Wells Fargo sees headline CPI remaining around 5% Y/Y through 1Q 2022.
• Even so, they see the more patient FOMC members "taking comfort" from this report (in addition to inflation expectations remaining contained).