We expect the headline CPI MoM for June to come at .23% MoM & the core CPI MoM for June to come at .24%. Certain tariff-sensitive goods prices appear to have risen, but price pressures induced by tariffs remained limited. Our forecast for core goods inflation is +0.10% m-o-m in June, up from -0.04% in May. Vehicle price inflation likely remained subdued. We think that some tariff sensitive goods prices such as apparel and sporting goods rose in the month, but there was little sign of broad-based price increases. Even Japan auto export prices have been falling. According to the Bank of Japan’s corporate goods price report released last week, the export price index for vehicles shipped to North America fell 19.4% year-over-year on a contract currency basis, the steepest decline recorded since 2016. Although the value of car exports to the U.S. dropped nearly 25%, the actual volume fell only 3.9%, indicating automakers are absorbing much of the tariff cost. According to the ISM services survey, both retailers and wholesalers reported their inventories were too high in June, as the inventory sentiment index remained elevated. It takes some time for domestic distributors to exhaust inventories accumulated before tariffs were raised. Rent inflation likely rebounded in June after an unexpected deceleration in May. Our forecast for core service price inflation excluding rent-related components (super core inflation) is 0.28% m-o-m for June, up from 0.061% in May due to stabilisation in volatile components such as airline fares & lodging away from home prices. Core PCE inflation likely accelerated in June due to an increase in portfolio management and investment advice prices. Based on our forecast for CPI and PPI, we expect core PCE inflation rebounded to 0.29% m-o-m in June from 0.179% in May. Among PCE-relevant PPI data, we expect a 4.5% increase in portfolio management and investment advice prices after back-to-back declines in the prior two months. What June CPI might imply for Fed: Considering the recent resilience of the labor market, the Fed will likely stay on hold at the July FOMC meeting despite limited evidence of tariff-driven inflation. If our forecast is correct, the June CPI report might encourage some dovish FOMC participants to call for an imminent rate cut, leading to a couple of dissents at the July meeting. However, many policymakers mentioned that they will take the summer to assess the impact of tariffs, which means the Committee will likely wait for July and August inflation data. We continue to see 2 rate cuts of 25 bps each in REMCY25, one in Sep & another in Dec. 2*10 US SOFR steepeners is our trade recommendation on above view. We had recommended it at .18 levels and is doing well, currently being at .22.
