US: Another inflation miss points to a softer near-term trend – Deutsche Bank

A fourth consecutive disappointing US CPI print has caused analysts at Deutsche Bank to mark down their year-over-year core inflation trajectory through year-end.

Key Quotes

“As in any CPI report, there were some components which looked abnormally weak. This month these included airline fares, tobacco and physician's services. But the bigger story is a broader core inflation slowdown with limited positive payback in several categories that have been weak recently.”

“We now see core CPI inflation remaining near 1.7% in year-over-year terms through 2017, having been depressed by recent soft inflation prints. In month-over-month terms we continue to expect a rebound through year-end but have taken on board a somewhat softer trend from here compared to our previous expectations. Importantly for the Fed, however, shorter horizon inflation rates, such as on a 3-month annualized basis, should exhibit a noticeable uptick to above 2% by year-end. More medium-term, our outlook for core inflation to normalize remains broadly intact. Macro momentum (e.g., ISM) and a tightening labor market continue to support a pickup in core inflation, and key leading indicators for core goods inflation, namely the dollar and consumer PPI data, support some further firming.”