September rate hike decision hinges on August data after US CPI, says Capital Economics
Macro
Stephen Brown, chief economist at Capital Economics, said the July US consumer price index core measure rose just 0.21 percent month on month, which did not settle the debate between dovish and hawkish members of the Federal Open Market Committee. On the July US producer price index due tomorrow, his preliminary forecast implies the core personal consumption expenditures deflator will also rise 0.21 percent, slightly above the 0.17 percent pace consistent with the inflation target, but not strong enough to add urgency to the case for a rate hike. As a result, he said the Fed's decision on the September hike he has been forecasting will depend on the August CPI and PPI released a few days before the meeting. He expects July core PPI to rise 3.3 percent year on year, though strictly speaking it is 3.25 percent, and if the actual increase comes in even slightly below expectations, core PCE would be pushed down further. In the July CPI, headline and core rose 0.1 percent and 0.2 percent month on month respectively, both in line with market expectations, and the breakdown was also roughly as expected. Apple product price increases lifted PC-related items by 3.5 percent, and audio and video equipment rose 0.4 percent on artificial intelligence-related demand, boosting core goods, while lodging costs plunged 2.8 percent, offsetting that and leaving shelter up just 0.2 percent.
