The US – Is the Inflection Point Here Already?

From an over 40-year high of 9.1% y/y annual inflation rate it hit in June, the US CPI grew slower at 8.5% y/y for the month of July, in line with our expectation (cons.: 8.7%). Core inflation, which excludes food and energy items, remained untouched at 5.9%, also beating market expectation of 6.1% y/y.

On a monthly basis, the headline CPI showed a flat reading after surging 1.3% m/m in the previous month (cons.: 0.2% m/m) while core inflation rose only by 0.3% m/m, much slower than the 0.7% growth back in June.

The softer-than-expected figures can be attributed to the slowing decelerating energy components which only grew 32.9% y/y (June 22: 41.6% y/y) due to the sharply slower growth in gasoline price (44% y/y vs. 59.9%). On the road, the average regular gasoline price for July 2022 was US$4.56 per gallon, a 7.5% decline from US$4.93 per gallon in June 2022.

The monthly average global oil price was also trending lower over the same period at US$105 per barrel, marking a 10.5% decline from June 2022.

Other components such as new vehicles also had a smaller increase at 10.4% y/y compared to 11.4% y/y in the prior month, followed by airline fares, which posted a 27.7% y/y growth, lower than the 34.1% y/y in June 2022. Meanwhile, components such as food prices, and shelter grew faster, providing an upward support on the headline inflation figure.

We are on the lookout for upside risks coming from the summer travel season and tight labour market. With non-farm payrolls springing on the upside and unemployment rate dipping to 3.5% last week, we posit that it will be some time before the labour market can breathe a sigh of relief.

Moving forward, we expect the US inflation rate to continue growing slower although we do not think that the Fed will pivot from its tightening path soon. It still has another month of data before the next meeting in September. We maintain our Fed funds rate projection of 3.25%–3.50% by the end of the year.

Source: AmInvest Research - 11 Aug 2022