CPI adds wind to the sails of September rate cut
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Article Type
Insights
Topic
Macro
Published
July 12, 2024
Read time
5 mins
Author
Frank Rybinski, CFA
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Inflation staged a broad retreat in June, according to the latest data from the Bureau of Labor Statistics.

 

The consumer price index (CPI) showed price pressures are easing, with the headline number falling -0.1% in June from the previous month. That helped pull the annual rate down from 3.3% in May to 3%, which marked its lowest level since March 2021.

Inflation and housing: Year-over-year % change

 

Inflation and housing: Year-over-year % change

 

Sources: Bureau of Labor Statistics, Haver Analytics. Data as of July 2024.

 

Core CPI - which excludes food and energy prices and accounts for roughly 80% of total CPI figure - followed suit, slipping to 0.1% in June from 0.2% in the previous month. On a year-over-year basis, core CPI came in at 3.3% last month compared to 3.4% in May, which is a sharp decline from its 3.9% reading at the start of a year.

 

Core CPI: 1-month annual rate (80% of index)

 

Core CPI: 1-month annual rate (80% of index)

 

Source: Haver Analytics

 

Diving a little deeper into the data, we see that core CPI minus shelter costs, fell -0.02% - its second consecutive negative monthly print. Meanwhile, Federal Reserve Chairman Powell's preferred super core CPI measurement (core services excluding shelter costs, which accounts for 28% of the total CPI index) posted its second straight monthly contraction, falling -0.05% in June after a -0.04% decline in May.

 

Core CPI excluding shelter (43% of the index)

 

Core CPI excluding shelter (43% of the index)

 

Source: Haver Analytics. Data as of July 2024.

 

Super core: CPI core services, excluding shelter (28% of the index)

 

Super core: CPI core services, excluding shelter (28% of the index)

 

Source: Haver Analytics. Data as of July 2024.

 

Shelter costs themselves also cooled, coming in at 0.2% for the month although still up 5.2% for the year. Still, its worth noting that housing is a structurally short-term market and its pricing typically runs ahead of headline inflation due to the calculation methodology. So, housing prices typically lag inflation on the upside and on the downside.

 

In a nutshell, the broad anecdotal dis-inflation theme that was prevalent in the last two Beige Book reports seems to be working its way into the hard data. This is also confirmed by the cooling were seeing in the labor market.

 

We expect these trends to continue and, as a result, are maintaining our base case for the Federal Reserve to begin cutting rates in September. The market seems to share this sentiment and, as of this writing, is pricing in 100% chance of that scenario. A month ago, those odds were roughly a coin flip.

 

Inflation slice and dice

 

 

As of

% of Index

m/m

m/m AR

3m AR

6m AR

YoY

Chg v. Dec '20

CPI-U

Jun-24

100%

-0.06%

-0.7%

2.8%

3.3%

3.0%

19.5%

CPI-U: Core

Jun-24

80%

0.06%

0.8%

3.2%

3.7%

3.3%

17.8%

CPI-U: Core, ex-Shelter

Jun-24

43%

-0.02%

-0.3%

2.0%

2.4%

1.8%

14.7%

CPI-U: Core, ex-Shelter & Used Autos

Jun-24

41%

0.05%

0.6%

2.5%

3.0%

2.5%

14.7%

CPI-U: Services, ex-Shelter

Jun-24

28%

-0.05%

-0.6%

3.9%

5.7%

4.6%

17.1%

Cleveland Fed Trimmed Mean CPI

Jun-24

84%

0.17%

2.0%

2.9%

3.7%

3.3%

18.0%

Cleveland Fed Median CPI

Jun-24

-

0.19%

2.4%

3.8%

4.6%

4.2%

18.8%

PCE

May-24

100%

-0.01%

-0.1%

3.5%

2.6%

2.6%

16.5%

PCE - Core

May-24

88%

0.08%

1.0%

3.6%

2.8%

2.6%

15.2%

PCE - Core Services, ex-Housing

May-24

-

0.10%

1.2%

4.1%

3.8%

3.4%

16.0%

Dallas Fed Trimmed Mean PCE

May-24

45%

0.12%

1.4%

3.2%

2.9%

2.8%

13.3%

Cleveland Fed Median PCE

May-24

-

0.19%

2.3%

3.5%

3.4%

3.3%

15.8%

San Fran Fed - Cyclical PCE Inflation

May-24

-

0.29%

3.6%

4.7%

4.8%

4.8%

22.0%

San Fran Fed - Acyclical PCE Inflation

May-24

-

-0.04%

-0.5%

2.9%

1.7%

1.2%

11.6%

 

Important information

Author

Frank Rybinski, CFA
Head of Macro Strategy

Frank Rybinski, CFA, is head of macro strategy responsible for guiding the firm’s global macroeconomic view as it pertains to tactical and strategic asset allocation.

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