Clear deceleration in US ‘super core’ inflation
|Overview: Underlying inflation momentum has clearly moderated in the US and is also more well-behaved in euro area. Inflation pressures gradually ease with weak goods inflation, and in the case of US, cooling labour market and easing wage growth. In the euro zone wage growth is still sticky. Freight rates have shot higher lately. We expect inflation to drop further in H2 2024 but still expect central banks to be cautious in policy easing due to only gradual easing of the labour market.
Inflation expectations: Short-term inflation expectations have remained broadly stable at moderate levels in both US and Euro area. Longer-dated measures remain well anchored close to the 2% target level.
US: CPI was again lower than expected in June on both core and headline level. Headline showed -0.1% m/m (consensus 0.1% m/m, previous 0.0% m/m) while core CPI increased only 0.06% m/m versus consensus of 0.2% m/m. The really good news was a negative print in the ‘super core inflation’ (services ex shelter), for the second month in a row. Shelter inflation also moderated to 0.2% m/m from 0.4% m/m. Core goods inflation stayed well behaved declining of 0.1% m/m. With the labour market also cooling, the Fed should now be very close to have sufficient confidence to start easing. The meeting on 31 July cannot be ruled out but we believe they will instead choose to provide strong guidance for a September cut.
Euro: Headline inflation in June declined to 2.5% y/y from 2.6% y/y as expected due to lower energy and food inflation, while core remained sticky at 2.9% y/y, above expectations of 2.8%. The sticky core inflation continues to be driven by strong momentum in services inflation fuelled by high wage growth, which poses an upward risk to the inflation outlook. Nonetheless, the ECB's seasonally adjusted data indicates a decrease in the monthly growth rate of services inflation, and consequently in core inflation, providing some relief to the ECB. Over the summer, we expect headline inflation will flatline and then decline in August and September due to energy base effects, while core inflation remains sticky.
China: June CPI dropped to 0.2% y/y from 0.3% y/y while Core CPI was flat at 0.6% y/y in line with the past year’s trend. PPI rose from -1.4% y/y to -0.8% y/y.
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