USD: CPI Report Shows Underlying Price Pressures Continue To Build – CIBC

US Core Inflation came out at 2.4% y/y, better than had been expected. Will it push the Fed to raise interest rates at a quicker pace?

Here is their view, courtesy of eFXdata:

CIBC Research discusses its reaction to today’s US CPI print for the month of July.

“Headline inflation appears to have plateaued, but a marginally higher reading ex-food/energy suggests underlying price pressures continue to build. Headline CPI rose by 0.2% seasonally adjusted in July, despite a slight drag from energy prices, which kept the year-over-year pace at 2.9%.

With oil prices having come off their recent highs, the annual rate of headline CPI could well edge down a little in the next couple of months before converging to the current pace of core CPI in 2019. However, core inflation was solid in July, with the 0.2% gain on the month good enough to take the annual pace up a tick to 2.4% (consensus 2.3%). While that will still leave the Fed’s preferred core PCE measure near 2% (and as such won’t change the trajectory of interest rate increases), it could see bond yields rise a little today particularly after market expectations for today’s CPI print were lowered by yesterday’s weaker producer prices data. After a run of down months, airline fares rose 2.7% to support the ex-food/energy print,” CIBC argues.

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