PIMCO: US CPI Preview

PIMCO: US CPI Preview

September 13, 2022

Economy United States
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By Allison Boxer, Economist at PIMCO

All attention will be on Tuesday’s CPI report, but barring a material downside surprise we doubt it changes the outlook for another 75bp rise in the Fed funds rate at the September FOMC meeting.

The recent commodity price decline is expected to lead to a negative month-over-month CPI print; however, we think core will be similar to last month – down from the alarming pace seen earlier this year, but still uncomfortably firm. Elsewhere we think that August retail sales will confirm that the US consumer is still holding on, as lower energy prices helped support spending in other discretionary categories.

We expect divergence across headline and core CPI in August, similar to the message from the July report. Headline CPI is set to decline thanks to the recent weakness in commodity prices. The fixing market is looking for a -0.18% month-over-month, which would be the weakest print since April 2020. We think core inflation will be stronger, rising 0.4% month-over-month (vs. consensus 0.3% month-over-month).

Similar to last month, we think the combination of a softer pace of goods inflation, declining used car prices, and weaker leisure services prices will help bring core CPI off the boiling point seen earlier this summer. However, we still expect the details to be uncomfortably hot for Fed officials, as shelter prices remain significantly above their pre-pandemic trend.

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