- A higher than expected increase in the shelter and medical services components component lifted core CPI inflation to 2.1% yoy. The collapse in the energy component compressed the headline rate to 1.6%.
- The sectoral pattern is consistent with the fading of some transitory weakness, but the cyclical component of inflation is not reacting to labor market slack. Core inflation will undershoot the Fed target this year too.
- Meanwhile, inflation expectations remain subdued, also due to low oil prices and higher worries on growth.
- The weakness of inflation expectations was duly noted in the minutes of the June meeting, while Powell before the Congress stressed the risks around a still solid outlook. The tone appears consistent with a 25 bps cut in the July 31 meeting.