US CPI data preview - Nomura

Analysts at Nomura offered a preview for the US CPI data due in the US session tonight.

Key Quotes:

"We expect a decent 0.2% (0.189%) m-o-m increase in August core CPI. Our forecast of its y-o-y rate is 1.63%. We think a sharp 4.2% drop in lodging-away-from home prices in July, which lowered core CPI m-o-m inflation rate by 0.05pp, may have reverted to some extent in August. That partial reversal in lodging-away-from-home prices would largely explain an expected acceleration in core CPI m-o-m inflation to 0.189% from 0.114% in the previous month. Airline fares, another volatile series, likely have remained stable in the month, contributing to a steady increase in core service prices.

On rents, however, we expect a gradual slowdown to continue considering weakening rental housing markets. The vacancy rate of apartment buildings has picked up in Q2. Further, the absorption rate of new apartments (new units rented within three months) has been trending downwards. Considering this trend, it is unlikely to see material acceleration in the inflation of rents and homeowners’ equivalent rent in the near term. As for wireless telecom service prices which often surprised on the downside, we expect another moderate decline in August, but an introduction of two-tiered price strategies by one of major carriers increases uncertainty. On core goods, we expect enduring factors to continue to weigh on inflation. Considering industry data, we think new and used car prices remained subdued. Further, prices of apparel may get pushed down further as competition from online retail stores intensifies, which often offer deep discounts to attract shoppers. 

Our headline CPI forecast is 0.3% (0.348%) m-o-m (1.875% y-o-y). Our CPI NSA forecast is 245.366. Our forecast is partially driven by a strong increase in energy prices. Retail gasoline prices likely surged sharply in August following a slowdown in July. We expect a flat reading in food prices. Based on incoming information from the PPI release, food at home prices likely declined modestly. However, for food prices outside the home, we expect continued stable increases, reflecting the tightening of labor markets in the restaurant industry."