US: Steady core inflation – Nomura

Analysts at Nomura note that the US headline CPI inflation was up a modest 0.129% m-o-m in June, below expectations (Nomura: 0.212%, Consensus: 0.2%).

Key Quotes

“On a 12-month basis, headline CPI inflation registered 2.872% y-o-y, broadly in line with expectations and up 0.1pp from 2.801% y-o-y in May. The downside surprise in headline CPI was due to softer-than-expected gain in food prices (+0.176%) and an unexpected decline in energy services prices which include electricity and gas (-1.464%).”

“On a 12-month basis, core CPI inflation came in at 2.255% y-o-y, matching expectations. The components of core CPI suggest that the underlying pace of core inflation remains steady.”

“Based on June CPI and PPI data, we forecast a modest 0.060% m-o-m increase in core PCE prices in June. If realized, the 12-month change rate of core PCE prices would slow to +1.881% in June from +1.995% in May.”

“We continue to see a gradual pickup in core PCE inflation on a 12-month change basis over the medium term. We expect core PCE inflation to reach 2.1% y-o-y by end-2018, 2.2% by end-2019, and 2.4% by end-2020.”

“Core CPI data suggest a steady pace of underlying inflation Overall, solid readings in persistent components of core CPI suggest that the underlying trend of core inflation remains unchanged.”

“Core PCE inflation forecast Based on June CPI and PPI data, we forecast a modest 0.060% m-o-m increase in core PCE prices in June.”

“We expect core PCE inflation to reach 2.1% y-o-y by end-2018, 2.2% by end-2019, and 2.4% by end-2020.”