In last month’s CPI release, I had predicted both headline and core CPI coming in right at expectation or very slightly under (0.1% under) YoY. Headline CPI came in at 2.4% (my expectation was 2.3/2.4%) and core CPI came in at 2.8% (even cooler than my prediction of 2.9%). Overall, leading metrics were pretty close in predicting the outcome. We will take a look at how leading metrics are looking, to get an idea of where June CPI may have headed when compared to May.
The expectations for CPI are YoY headline CPI coming in at 2.7% (vs. 2.4% last month) and core CPI YoY coming in at 3.0% (higher than previous month’s 2.8% reading). The MoM readings are expected to rise at 0.3% for headline and 0.3% for core, which would be a steeper rise than previous month’s 0.1% rise. I believe both headline and core CPI YoY will come in below expectation but still above previous month’s readings. I expect the YoY readings to be about 0.1% cooler than expected – 2.6% headline, 2.9% core. I expect the MoM reading to be slightly cooler than expected for headline (0.2%) as well as core CPI (0.2%). I expect the equity reaction to be relatively flat to slightly up from the release. If a dip is provided off readings similar to my expectations, it should be a buy.
- The United States M2 is still rising having an upward effect on CPI.
- Commodity + Energy price index has slightly risen as per SPGSCI. This should have an upward effect on headline CPI.
- US Consumer Credit has fallen which should have a cooling effect on headline and core CPI.
- US Consumer Spending has fallen which will have a cooling effect on CPI and core CPI.
- 5 Year Expected Inflation is elevated but the reading remains skewed as per the surveys which continued to be skewed by Democrats as well as Trump fears.
- Wage growth has risen which will have an upward effect on headline + core CPI.
- Overall, most metrics support an upward effect on CPI but I think the amount will be less than expected. Although these metrics have risen, they have not risen significantly enough to warrant the expected readings IMO. Both headline and core should still be hotter than the previous month, but IMO below the expected values.
My overall view for this CPI reading is a slightly cooler than expected headline and core CPI but still hotter than the previous month.