We expect the headline CPI MoM for July to come at .24% MoM & the core CPI MoM for July to come at .3%. This translates to a YoY growth in headline CPI at 2.8% & core CPI at 3.0%. Core goods prices likely rose by 0.44% m-o-m in July. Tariffs continued to push up non-auto core goods prices, while auto prices appear to have stabilized after having declined over the past few months. Regular rent inflation likely inched up slightly, but remained lower than owners’ equivalent rent (OER). Super-core inflation likely grew at a faster pace of 0.34% m-om after a 0.212% advance in June. 5. Over the next few months, we expect tariffs to continue to boost monthly inflation and forecast monthly core CPI inflation between 0.3-0.4%. Aside from tariff effects, we expect underlying trend inflation to fall further this year, reflecting shrinking contributions from the housing rental and labor markets. We expect year-over-year core CPI inflation of +3.2% and core PCE inflation of +3.2% in December 2025 (or +2.4% for both measures excluding the effects of tariffs). Based on our CPI and PPI forecast, we expect July core PCE inflation picked up modestly to 0.32% m-o-m from 0.256% in June and 0.213% in May. What July CPI might imply for Fed: Most of the increase in July CPI specially the super core CPI is coming on account of reversal in airline fares & lodging away from home prices which is along expected lines as they have been falling for last 4-5 months. The core CPI reading of .3% MoM should be within comfort zone of Fed for a Sep 25 bps cut given widely shared expectations for stronger goods price increases in coming months. So long as inflation remains confined to goods and is not excessively high (leading to 0.45%+MoM overall core inflation), we think Fed officials will remain on course to lower rates toward neutral. Currently the market is pricing in only 57 bps of cuts for REMCY25 which we believe can easily go to 75 bps if Aug NFP data surprises on the downside again. We believe the employment mandate of Fed will be far more in focus than one time jump in CPI which will lead to front loaded cuts in the next 6 months.
