US inflation generally has remained tame despite the tariff battle between the US and China. Headline inflation was up 0.3% m/m from 0.1% m/m in June, beating expectations of a 0.3% gain. Excluding food and energy costs, it rose 0.3% m/m, unchanged from June.

Though the CPI numbers came in slightly better than expected, it is unlikely to deter a rate cut where both the US and the markets have been clamouring for. We are factoring in an 80% chance of a 25bps rate cut in September by the Fed and a 40% chance of a 50bps cut.

• US inflation generally has remained tame despite the tariff battle between the US and China. Headline consumer prices rose slightly more quickly than expected in July as gasoline reversed a two-month decline and the cost for rent continued to climb.

• Headline inflation was up 0.3% m/m from 0.1% m/m in June, beating expectations of a 0.3% gain. Excluding food and energy costs, it rose 0.3% m/m, unchanged from June but came in better than market expectations of 0.2%.

• On an annualized basis, the headline inflation rose 1.8% y/y from 1.6% y/y in June, while core inflation increased by 2.2% y/y from 2.1% y/y in June.

• The Federal Reserve targets inflation at 2%. However, it has maintained a symmetrical approach which means that it will be content if the inflation level was slightly above or below that level over the short term.

• However, the Fed also prefers to use the personal consumption expenditures deflator as its inflation gauge, and that has been running closer to 1.5%.

• Though the CPI numbers came in slightly better than expected, it is unlikely to deter a rate cut where both the US and the markets have been clamouring for. We are factoring in an 80% chance of a 25bps rate cut in September by the Fed and a 40% chance of a 50bps cut.

Source: AmInvest Research - 14 Aug 2019