• Headline CPI dipped to 1.6% y/y in June
  •  Lower energy prices accounted for most of the decline
  • Core CPI ticked up to 2.1% y/y (consensus 2.0%)

If last Friday’s strong payroll report and a pause in the US-China trade war post-G20 didn’t change the Fed’s thinking on a July cut, we doubt today’s modest upside surprise on core inflation will do the job. This marks the 16th consecutive month of core CPI at or above 2%, but softer core PCE inflation (favoured by the Fed) still had Powell saying, “inflation pressures remain muted” yesterday. The rest of his testimony also leaned dovish, bolstering market expectations for a rate cut later this month. It looks like the Fed is going to introduce a bit of accommodation to offset the negative impact of trade tensions and slowing global growth on the US economy. The fact that PCE inflation has consistently undershot the Fed’s 2% objective allows the central bank that flexibility, and today’s slightly firmer CPI report won’t change its calculus.


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