Tomorrow the US CPI data will be released at 8:30 AM. Although the numbers are not likely to impact the July Fed decision, it COULD be a difference between one more hike and no more hikes in 2023. Expectations shows:

  • CPI MoM 0.3% versus 0.1% last month
  • CPI ex-food and energy is expected to rise by 0.3% versus 0.4% last month
  • CPI YoY is expected to fall sharply to 3.1% from 4.0%. This is as a result of base effects. More specifically a year ago, the CPI increased by 1.3%. That number will drop out of the equation and be replaced by a much lower number. If the MoM number increases by 0.1% or less, the YoY could see a sub-3.0% level
  • CPI ex-food and energy is expected to dip to 5.0% from 5.3%. The MoM from a year ago was 0.7%. Like the headline, a MoM gain of 0.2% or 0.1% (or lower) could see a YoY of less than 5%.

Services less energy rose by 6.6% YoY last month. That component of CPI accounts for 58% of the CPI calculation. The biggest component of that calculation is the Shelter component (34.56% of total CPI). Shelter is up 8.0% on the year and rose by 0.6% last month.

If there is to be a surprise, that is the component that would likely be a catalyst for lower numbers. There is a calculation nuance, that delays gains and declines for that category (it is calculated using a 3-month smoothing lag). Analysts have been waiting for a slowing of the MoM numbers within that category, but last month (May) it still rose 0.6%. In April it rose by 0.4% and in March it rose by 0.6%. That is less than the prior 3-month periods but it still adds up to 1.6% for the sum of the 3 months (times 4 = 6.4%).

Much was made about the used car prices from the Mannheim used car price index yesterday. Used car prices are down year on year by -4.2% and could go more to the downside tomorrow if Mannheim numbers flow through. Having said that, Used car prices accounts for just 2.7% of the total CPI.

Transportation services which account for 5.88% rose by 0.8% last month and are up 10.2% YoY. What goes into transportation services? Motor vehicle maintenance (+13.5% YoY), motor vehicle insurance (+17.1% YoY), and airfares (which are actually down -13.4% YoY). That sounds like a "sticky" inflation component.

The dice will roll and we will see what the calculations show, but overall, if the number shows sub 3% for headline, and sub 5% for core, that would likely be applauded by markets (lower dollar, lower yields, higher stocks).

Keep in mind, however, that at 2.9% and even 4.9%, most of the base effects are now behind us in the headline data. For example, the headline will drop 1.3% increase from last year. Next month, the MoM number that will drop out is at 0.0%. A negative number would therefore be needed to bring the YoY down further in August (for the July number). .