July CPI Review: Goods Prices Remain Behaved

Overall the July CPI report showed less tariff related goods pressures than expected, in a month where we believed increased price pass-throughs would be more evident. Where tariff related cost increases are being absorbed along the supply chain is yet to be determined (tomorrow’s PPI should help inform), but thus far while goods prices are rising faster than earlier in the year, the impact in July was less than expected. For details, headline CPI came out at +0.2% m/m (+0.197% unrounded, +0.2% consensus) and +2.7% y/y (vs. +2.8% consensus), with food prices moderating slightly and energy posting monthly deflation. For core CPI, core goods were +0.21% vs. +0.4% median, as noted, this may have been the biggest positive surprise and expectations were for this to remain under upward pressure. Notably, much of that gain came from used car prices (+0.48%), so at least here, there appears to be less tariff related pressure than expected (apparel was +0.1%, home furnishings +0.7% - but that was down from +1.0% prior). Core services were +0.36%, slightly stronger than expected, while the “ Supercore ” (core services excluding OER and rents) was +0.479% (versus a 3m average of +0.251%). Medical +0.8% was a large contributor as were travel related services: of the 0.09% increase to core CPI from June to July (June core was +0.23%, July +0.32%), core services were 0.08% of that, with airfares contributing 0.05% and lodging 0.03%, while core goods’ additional contribution was flat. Like the overall report, recent trends in core CPI are also a bit mixed. While the y/y figure ticked up slightly, and the 3m annualized rate rose to 2. 8 %, highest since March of this year, the 6m annualized rate fell to 2. 4 % - the lowest since March of 2021). For now, we still expect the annual rate of core CPI to rise to around 3.2% by the end of the year.