U.S. core inflation likely to rise by 0.2 pct m/m in June after four consecutive months of just 0.1 pct, says ANZ Research

The United States’ core inflation is expected to rise by a 0.2 percent m/m in June after four consecutive months of just 0.1 percent. Underlying pricing pressures remain subdued. Domestic demand could use an extra bump to boost cyclical inflationary pressures, according to the latest report from ANZ Research.

The forecast pick-up in core inflation is predicated on an expected rebound in the prices of goods after contracting for four consecutive months. Both apparel and used vehicle prices should rise after a lengthy period of weakness.

That said, uncertainty surrounds the trajectory of apparel prices following Bureau of Labor Statistics’ (BLS) methodological change earlier this year. The BLS has expanded its sources of data to include outsourcing some of the data collection rather than relying only on its traditional in-house surveys.

Also likely contributing to higher goods prices in June should be the after effects of the US administration’s decision to raise the tariff rate on USD200bn of Chinese imports from 10% to 25% on 10 May.

This would add at most 0.1 ppt in total to the rate of inflation, according to analysis (Inflationary Effects of Trade Disputes with China) from the Federal Reserve Bank of San Francisco. Only a small part of this amount would likely occur in the month of June.

"We look to FOMC Chair Powell’s testimony and the June meeting minutes for guidance on the timing of easing. With the market pricing a 25bp cut in July as a done deal, Fed speakers need to push back if this is unwarranted. A further deterioration in global manufacturing and lackluster domestic inflation suggest that a cut is warranted soon," the report further commented.