• Consumer prices rose 0.2% MoM and 2.9% YoY.
   
• Core CPI gains 0.2% MoM; up 3.2% YoY.
   
• Core services inflation advanced a bit faster in July, rising by 0.3% MoM.

• Core goods prices fell by 0.3% MoM.

• Cooling US inflation solidifying a September rate cut.

Inflation rose moderately in July, opening the door wider for the Federal Reserves to cut interest rates next month.

The Consumer Price Index increased 0.2% MoM in July, coming in right at expectations. On a yearly basis, the CPI rose 2.9%, its lowest yearly growth rate since March of 2021, and slightly below expectations of 3%. After exerting a measurable drag in each of the two prior months, energy prices were largely flat in July. Food prices matched last month’s gain, rising 0.2% and has also eased substantially from its peak. Energy prices rose 1.1% YoY while food prices rose 2.2% YoY.

Similarly, core CPI inflation, which leaves out volatile food and energy prices, rose 0.2% MoM in July, a modest acceleration from June’s very soft monthly gain of 0.06% . On a yearly basis, core CPI was up 3.2%, its lowest yearly rate since April of 2021 while the three-month annualized rate of change fell to 1.6%.

Core services advanced a bit faster in July, rising by 0.3% MoM, and were entirely responsible for the uptick in headline inflation. Shelter costs ticked higher by 0.4% MoM, or roughly double the pace of growth seen in June and accounted for 90% of the monthly gain in headline CPI. Last month’s uptick in shelter costs were roughly in-line with the monthly gains averaged over the past twelve-months. The index for rent rose 0.5% over the month and the index for owners’ equivalent rent increased 0.4%. The details also showed apparel prices fell 0.4% MoM while transportation fell 0.1% thanks to falling new and used vehicle prices and a 1.6% drop in airline fares. Medical care costs also fell 0.2% in July, after rising 0.2% in June. The index for all items less food and energy or core services rose 3.2% YoY. The shelter index increased 5.1% over the last year, accounting for over 70 percent of the total 12-month increase in the all items less food and energy index.

Meanwhile, non-housing service inflation, or ‘supercore’ services inflation (stripping out food, energy, goods and shelter costs) rose by a soft 0.2%, an acceleration from last month’s modest pullback – thanks to an uptick in motor vehicle insurance (+1.2%), recreational services (+0.4%) and ‘other’ personal services (+0.3%). However, take note that supercore inflation had averaged above 0.5% MoM in the first four months of the year, so there is still a clear moderation, with this component effectively averaging 0% over the past 3M. ‘Supercore’ inflation rose 4.5% YoY.

Core goods prices fell by 0.3% on the month, largely due to a further decline in new (-0.2%) and used vehicle prices (-2.3%). Goods prices have been flat or have registered a decline in each of the last 14 months.

Source: BIMB Securities Research - 15 Aug 2024