The core consumer price index (CPI) is expected to rise slightly for July, but is expected to remain relatively low, indicating a steady trend of declining inflation.
Both analysts from Nomura and Morgan Stanley expect a gradual increase in core inflation, with commodity prices likely to continue to fall due to elements such as lower car prices and ongoing large-scale retail price cuts.
“The gradual decline in core inflation is expected to continue, and this slowdown may be more pronounced due to the unpredictable nature of some components in July. We expect prices of essential travel-related goods and services to fall for the fourth consecutive month,” analysts in Nomura said.
Although there may be a slight recovery in housing expenses, the prevailing trend remains towards lower inflation.
The overall CPI is also expected to rise slightly in July, mainly due to increased energy costs. However, this slight increase is unlikely to change the overall direction of declining inflation.
“We expect stronger performance in services, largely due to adjustments in volatile categories such as hotel accommodation and airfare prices. We expect inflation in the housing sector to remain low,” analysts at Morgan Stanley (NYSE:MS) said.
Main factors
Commodities: Continued weakness due to low car prices and ongoing retail promotions.
Housing: A slight increase in rental prices and equivalent rent for landlords, but the trend of low inflation continues.
Energy: The increase in gasoline prices is expected to contribute to the rise in the overall consumer price index.
Car insurance: The continued decline in prices is expected to continue.
Policy implications:Both Nomura and Morgan Stanley expect the Fed to maintain its interest in the labor market while slowly reducing the intensity of its monetary policy. The continued trend of declining inflation is likely to facilitate a rate cut later in the year.
Expectations:Although the CPI data for July may indicate a slight increase, the main trend is still lower inflation. Important elements such as housing and basic commodities continue to show signs of declining strength. As the Federal Reserve adjusts its policy approach, the trajectory of core PCE inflation will be closely scrutinized.
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