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Core CPI to increase 0.1% - BMO CM

Michael Gregory, Deputy Chief Economist at BMO Capital Markets suggests that they are looking for US core CPI to increase 0.1% in June, keeping the annual change at 1.7% y/y.


Key Quotes


“The recent cooling of core CPI inflation has been dramatic. In January, the annual change matched its highest level in more than eight years at 2.3% y/y, but it fell to 1.7% by May, mostly due to idiosyncratic factors. For example, more than threequarters of the cooldown can be attributed to three sources. First, the effective cost of cellphone service plans is falling owing to a market share war in which unlimited data was the latest salvo. Second, there’s another market share war being waged between traditional retailers and their internet-based and off-price competitors. As a causality, to begin 2017, there was a wave of store closing announcements, and many were to begin this spring—think lots of “store closing” sales (and falling apparel prices). Third, medical cost inflation has slowed sharply (after hitting multi-year highs last year).”


“We suspect health care providers along with drug and insurance companies might be purposely pricing to fly under the political radar with health care high on the political agenda. It’s unclear whether there’s more to come on these fronts, but reversals are unlikely anytime soon, as their impacts on the annual change persist. In June, we look for core CPI to increase 0.1%, keeping the annual change at 1.7% y/y. With lower gasoline prices more than offsetting higher food prices in the month, total CPI should be flat, pulling the annual change down a couple tenths also to 1.7%.”

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