US: Lower energy prices should give consumers some relief in the coming months - Wells Fargo

Analysts at Wells Fargo, expect the CPI reading on Thursday to slow to 2.7% (y/y) in August from 2.9%. They consider that lower energy prices should offer a relief to consumers in the coming months. 

Key Quotes: 

“The headline CPI rose 0.2% in July, putting the year-over-year increase at 2.9% for the fastest pace in six years. While a drop in energy prices caused a smaller rise in overall inflation, core inflation rose 2.4% year-over-year to reach a new cycle high. The July surge in core inflation was led by a continued increase in services prices, along with a pickup in airfares and prices for new and used autos.”

“Although rising energy prices have been a key factor behind rising inflation in recent months, we look for energy prices to moderate going forward. While higher inflation has restrained real wage growth over the past year, lower energy prices should give consumers some relief in the coming months, and a continued tight labor market should also support wage growth.”

“Given the steady rise in core CPI that has kept track with the pace of PCE inflation, it looks to be full steam ahead for the FOMC to raise rates twice more this year, and we look for core inflation to continue to firm into 2019.”