Headline CPI was flat m/o/m in July and up by .3% m/o/m at the core level, both 2 tenths below expectations. For perspective, the comparisons were 1.3% and .7% in June. Versus last year, the headline gain was up 8.5% vs 9.1% in June and by 5.9% at the core, unchanged with June. Driven by a 7.7% drop in gasoline prices, energy fell by 4.6% m/o/m, though still up 33% y/o/y while food was up another 1.1% m/o/m and 10.9% y/o/y.
Services inflation ex energy was higher by .4% m/o/m after a .7% gain in June. It’s up 5.5% y/o/y. OER was higher by .6% m/o/m and 5.8% y/o/y while Rent of Primary Residence was up by .7% m/o/m and 6.3% y/o/y. Notice though that rents are still WAY undercounting reality on the ground. Medical care costs grew by .4% m/o/m and 4.8% y/o/y. Car insurance jumped another 1.3% m/o/m and by 7.4% y/o/y. Fixing your car will cost you 1.1% more from last month and by 8.1% from last year. Airline fares moderated by almost 8% from June but are still up 28% y/o/y.
On the goods side, core prices were up .2% m/o/m and 7% y/o/y. That y/o/y gain is a slowing rate of change for the 5th straight month. New car prices rose again, by .6% m/o/m and 10.4% y/o/y. Used car prices fell .4% after a 1.6% jump in June and the y/o/y gain moderated to 6.6% as the comps are very tough. Household furnishings and supplies saw a price gain of .6% m/o/m and 10.8% y/o/y. After big gains in the prior months, apparel prices were flat from June but up 5.1% y/o/y.
Bottom line, relief again in the rate of change in goods prices along with rent gains that are still way undercounting actual rent increases that prevented further acceleration in services inflation of note is obviously being taken very positively. We knew that gasoline prices were going to be down sharply. After pricing in a 76% of a 75 bps rate hike yesterday, that is down to 40% right now but we know there is another CPI figure, along with a jobs number before the Fed meets again. I’ll say again that they will be going 50 bps in September and I doubt much past that.
The 5 yr inflation breakeven is down 6.5 bps to 2.63% while the 10 yr is down more modestly, lower by 3 bps to 2.43%. The 2s/10s inversion is at 42 bps vs about 48 bps just prior. The dollar index is getting slammed by 1.3%.
The markets will have a day of respite on the peak in inflation with now the pace of moderation the question. Dealing with recession both economically and earnings wise is now what lies ahead, along with what I still believe will be sticky, but lower inflation where 2% or under is still a ways away. In addition, max QT and the lag impact of all these interest rate increases will be other potholes.
Core Goods Prices y/o/y
Services ex Energy y/o/y