BofA: What we anticipate from subsequent week’s US July inflation print

BofA anticipates a partial reversal of June’s downside inflation surprise in the upcoming July CPI report, projecting modest increases in both headline and core CPI, which could influence the Fed’s decision-making for rate cuts in September.

Key Points:

1. Forecasted Headline CPI:

   • Monthly Increase: BofA forecasts a 0.3% month-over-month (m/m) rise in headline CPI, with an unrounded increase of 0.25%.
   • Annual Rate: This rise would keep the year-over-year (y/y) rate steady at 3.0%.
   • NSA Index: The NSA index is expected to print at 314.993.

2. Contributing Factors:

   • Core Services Inflation: A pickup in core services inflation is a significant factor contributing to the monthly rise in headline CPI.
   • Energy Prices: An increase in energy prices is also expected to contribute to the higher headline CPI.

3. Core CPI Forecast:

   • Monthly Increase: BofA projects a 0.2% m/m rise in core CPI, with an unrounded increase of 0.22%.
   • Trend Alignment: While this is slightly higher than June’s figures, it aligns with the prior trend of deflation.

4. Implications for the Fed:

   • Benchmark for Rate Cuts: The projected core CPI increase should meet the Federal Reserve’s benchmark for beginning rate cuts in September, reflecting a continued trend towards deflation and controlled inflation.

Conclusion: BofA expects July’s CPI report to show modest increases in both headline and core inflation, reversing some of the downside surprise from June. These projections align with the Fed’s benchmarks for initiating rate cuts, supporting the likelihood of monetary easing in September.

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