Santander Corporate & Investment| And, as a result, and with the Beige Book still pointing to an improving economy since May, our economists anticipate a rebound in inflation and an unchanged road map for the Fed (hike in July of 25bp, pause in September and hike in November). The first pleasant surprise, seeing how the improvement in inflation came from the core side, which retreated to +0.2% m/m (+0.4% p) with total inflation rebounding (to +0.2% m/m from +0.1% p) on the back of a rebound in the price of gasoline and energy services. However, as our economists explain, service-related components where demand is unquestionably strong, were the ones that retreated the most (hotels -2.3%, airlines -8.1%, and -13.6% in the last three months). And they point out how the “fearsome five” (the five most volatile components of the core) pushed inflation down by 0.1pp, the largest negative contribution since spring 2020. On the other hand, the favourable effects of the comparable base change from June onwards with energy prices peaking in June 2022 and falling during the second half of the year so our economists believe that this CPI figure at 3.1% year-on-year in June (4%p) is probably the floor for the year. And they also recall a similar situation in July 2022, with core inflation falling back sharply (0.3% m/m from 0.6%) and then bouncing in August and September back to +0.6%.
Not so fast! More volatile core inflation components would explain surprise in US CPI
