US Consumer Price Index inflation release - Tilney Smith & Williamson comment

Sam Pham, Investment Strategist at Tilney Smith & Williamson comments on the release of the latest US CPI data:

What happened?

US headline Consumer Price Index (CPI) inflation printed 5.4% year-on-year for July, against 5.3% expected and 5.4% prior. Excluding food and energy, core CPI read 4.3% year-on-year, in line with expectations (4.3%) but lower than the previous print (4.5%).

What does it mean?

Today’s data broke the 5-month streak that saw CPI continuously beat preceding releases. This momentum slowdown could confirm the Fed’s view that the recent spike is transitory, although we maintain that it is too early for either side of this inflation debate to claim victorious. There are still 60% of CPI categories that saw prices jumping above 3% year-on-year.

It is important to note that despite this month’s print, the timeline for the Fed’s tapering is unlikely to be pushed out. Output gap is still projected to be closed by the end of this year, and inflation is still projected to end this year above target. Macroeconomic conditions are better this year than the Fed’s first tapering experiment in 2013 and 2014.