US CPI: inflation below expectation in June - Wells Fargo

Analysts from Wells Fargo, point out that CPI inflation came in below consensus expectations in June, reinforcing the Federal Reserve’s interest as they evaluate future monetary policy tightening action.

Key Quotes: 

“On balance, consumer inflation has registered soft performances over the prior four months and June was no exception as headline Consumer Price Index (CPI) was unchanged. The flat monthly performance was lower than the consensus expectation, and reinforces the view that the price environment exhibits little upward momentum as we enter the second half of the year. Year-over-year, headline CPI has steadily declined from its 2.7 percent recent high in February to its current reading of 1.6 percent.”

“Excluding food and energy, the core CPI rose 0.1 percent on the month, the third consecutive increase at that below trend pace. A perennial group of components accounted for the softer-than-expected gain with apparel declining for the fourth straight month, new & used cars falling for the sixth consecutive month, airfares contracting for the third straight month, and wireless services down for the fourth consecutive month. That said, some of the larger components of core CPI saw larger price gains, including rent and owners’ equivalent rent both rising 0.3 percent and medical care services also advancing 0.3 percent on the month. The three month annualized rate of core CPI firmed to a 1.0 percent pace, but remains below the 1.7 percent year-over-year pace and, therefore, suggest there is little upward pressure on core consumer inflation as Q3 unfolds.”

“Our updated forecasts generally agrees with Fed officials’ sentiment that recent weakness should not be extrapolated into the second half of the year, but that any gains are also likely to be limited. There is a lot of runway left before the December FOMC meeting where we believe the Fed may be in position to hike interest rates again, but a return to a quickening pace of inflation is critical to that call.”