Senior Economist at UOB Group Alvin Liew reviews the latest release of US inflation figures (July 12).

Key Takeaways

US headline consumer price index (CPI) increased by 0.2% m/m, 3.0% y/y in Jun (from 0.1% m/m, 4.0% y/y in May), below Bloomberg estimates (0.3% m/m, 3.1% y/y) and the lowest headline inflation reading since Mar 2021 (2.6%) and the third below 5% print in a row. Core CPI (which excludes food and energy) also rose at a slower than expected pace, coming in at 0.2% m/m, 4.8% y/y in Jun (versus Bloomberg estimate of 0.3% m/m, 5.0% y/y), compared to 0.4% m/m, 5.3% y/y in May. This was the smallest m/m increase for core CPI since Aug 2021, while the y/y print of 4.8% was the first sub-5% print since Nov 2021. 

US Inflation Outlook – Taking stock of the price trajectory to date, we now expect headline inflation to potentially head to sub-1% by end 2023 (in part due to base effects) and to average about 3.2% for 2023. In comparison, while core inflation continues to ease, the pace is clearly slower than the headline, so we now expect core inflation ease to 3.0% y/y by end-2023, still above the Fed’s 2% objective. For the full year, we expect core inflation to average 4.6%. That said, we think that a clear disinflation trend has set in for US CPI, and we expect accommodation costs to ease more visibly in 2H 2023. We also note that core and services inflation remain elevated (y/y) and still rising (m/m), while the continued wage growth may still add to services cost pressure.