While headline consumer price rose at the same pace as in May by 0.1% m/m, the core inflation was also up by 0.3% m/m in June — the largest increase since January 2018 following four straight monthly gains of 0.1% — boosted by strong increases in a range of goods and services i.e. apparel, used cars and trucks, as well as household furnishings.

The latest inflation data is unlikely to change the Fed’s expectation for a rate cut later this month. We feel the bounce in June’s core inflation was due to volatile items like vehicles and apparel, both in the negative region for the last few months. June’s rebound was due to previous weakness rather than to a change of trend. The debate is whether the Fed will be more aggressive to institute a 50bps cut in the July FOMC meeting to which we have placed a 60% chance while fully factoring in a 25bps cut.

• Headline consumer price grew 1.6% y/y in June, falling in line with expectations after rising 1.8% y/y in May. Meanwhile, on a m/m basis, the overall CPI edged up 0.1% in June, the same pace as in May, held back by cheaper gasoline and food prices.

• But core inflation, which excludes food and energy cost, rose 0.3% m/m in June, the largest increase since January 2018 following four straight monthly gains of 0.1%. It was boosted by strong increases in a range of goods and services i.e. apparel, used cars and trucks, as well as household furnishings. So on a y/y basis, it rose to 2.1% in June from 2.0% in May.

• From the latest inflation data, the Fed is unlikely to change its expectations for a rate cut later this month. We feel the bounce in June’s core inflation was due to volatile items like vehicles and apparel, both in the negative region for the last few months. June’s rebound was due to previous weakness rather than a change of trend.

• In our view, the debate now is whether the Fed will be more aggressive to institute a 50bps cut in July FOMC meeting. We have placed a 60% chance for a 50bps cut after taking into account of the Fed Chair’s statement and the latest inflation data. Meanwhile, we have fully factored in a 25bps cut in July.

Source: AmInvest Research - 12 Jul 2019