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US CPI: Don’t expect softness to last - Wells Fargo

According to analysts from Wells Fargo, the soft US CPI reading of July will not last. They noted that the reading was affected by energy prices.

Key Quotes:

“Inflation softened a bit in July, with headline CPI flat over the month. We do not expect the weakness implied by the July report to last, however. As expected, energy prices were a drag on the headline.”

“Core inflation eased in July, up 0.1 percent, but the softness can be traced to the more volatile components of the index. Goods prices fell 0.1 percent following another drop in used car prices. Prices for core services—the less volatile part of the core—continued to trek higher, rising 0.2 percent. One notable exception to this, however, was the nearly 5 percent drop in airline fares, which do bounce around sharply from month to month. More telling of the trend in core CPI was the further rise in shelter costs, as well as strengthening in medical care. Medical care costs rose 0.5 percent, cementing its end as a source of disinflation.”

Today’s CPI report likely does little to change the Fed’s view of inflation. Core inflation continues to trend higher on the back of services, which is unlikely to change as long as the labor market continues to tighten and wages are rising. Nevertheless, there are no signs of inflation picking up rapidly. Inflation expectations have come off the lows set earlier this year, but remain too low for many FOMC members’ comfort. While we expect CPI to pick up over the remainder of the year as the drag from food and energy prices fade and core inflation grinds higher, we believe the pace will be moderate enough to where the Fed will hold off on another rate rise until its December meeting.

 

 

 

 

 

 

 

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