“We expect headline CPI to pickup to 2.5% on the back of gasoline prices and base effects. We also expect core CPI to rebound to a 0.2% m/m rise (2.2% y/y) after printing two consecutive 0.1% prints,” TD Securities analysts said previewing tomorrow’s inflation report from the United States.
Key quotes
“The prior misses were driven primarily by sharp downturns in apparel and used vehicle prices that we expect to normalize. Much attention this month will be given to OER, which in the prior month posted a soft 0.2% rise, its weakest since December 2014. That print looks like a blip in our view given homeowner vacancy rates. We expect both OER and rents to rebound in October, underpinning a 0.2% increase in the core index for October.”
“Turning to core goods, we look for apparel to take back some of its previous weakness, though another decline cannot be ruled out. Used vehicle prices are also coming off a 3% drop, and further declines, albeit much more modest, cannot be excluded as well. We therefore err on the side of caution and expect the overall core index to rise 0.2%, with risks skewed to a 0.3% print should apparel, vehicles and OER each post strong rebounds.”
“An on-consensus print should keep the broadly USD stable. That said, with risks of a firmer print and good news still hard to find in other majors, suggests that the USD can re-test the 2018 highs. This is a reflection that the USD/rates dynamic has regained in significance as a driver for FX markets. As such, a firmer CPI print should leave the USD looking to take its cue from the rates market, though we think this could be a temporary lift.”
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