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.”

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