The U.S. CPI rose 9.1% year-on-year in June, higher than the expected 8.8%, the highest since 1981; the CPI was 1.4% higher than the expected 1.1% and the previous 1.1%. The dismantling of CPI projects in the United States in the past three months shows that in terms of year-on-year factors, energy prices and transportation prices have basically pushed up the CPI inflation rate in the United States, and the changes in other indicators are not large. From the perspective of CPI composition, the three major projects of housing, energy and transportation account for nearly 60% of the weight of CPI data, and their substantial growth has become the main contribution to CPI growth. Excluding the 10.4% year-on-year and 1% month-on-month growth rate of the food sub-item, on the basis of the weighted value of about 7.6%, it is expected to contribute nearly 1% to the pull. CPI, the rest is mainly driven by energy and housing.

Crude oil prices have fallen more than 15% recently. At the same time, the price difference between refined oil and crude oil has also begun to converge. If the follow-up oil price rebounds sharply without exceeding expectations, it will take time for the decline in crude oil prices to be transmitted.

In terms of housing, the year-on-year and month-on-month data in the past three months are relatively close. But it's important to note that U.S. mortgage rates are rising at the fastest pace on record since the 1980s, as the Fed hiked rates by 75 basis points in June. U.S. home sales have cooled sharply amid soaring mortgage rates.

As crude oil pulls down commodity prices, U.S. inflation may have peaked, and the CPI is expected to drop rapidly in the third quarter. Still, the effects of the “wage-inflation spiral” persist, or remain elevated. The number of non-agricultural job vacancies is still at a post-pandemic high, and tight supply and demand have pushed up prices and wages have continued to rise. In June, the average hourly wage of private non-agricultural enterprises increased by 5.1% year-on-year.

Therefore, the Fed is expected to raise interest rates by 75 basis points at today's interest rate meeting, and the rate hike will be gradually lower than market expectations at the meeting after September. Given that the wage-inflation spiral is likely to remain elevated for an extended period of time under deglobalization, and oil and commodities remain relatively elevated over a prolonged period of geopolitical turmoil, it is unlikely that the Fed will release liquidity in a similar fashion in 2020.

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