US Inflation Watch: Disinflation scare or relief?
Welcome to our US Inflation Watch. We see US CPI inflation coming in at 2.8% YoY and 0.1% MoM, with core inflation at firm 3.1% YoY and 4 bps hotter than headline on the month.
This is clearly below the early consensus, even if a few contributors dare to forecast even lower inflation levels than us.
Before we go into the details, it is worth noting that July is THE best month of the year to bet on soft inflation outcomes relative to consensus expectations. More than 50% of the time since 2015, it has paid off to bet on a low outcome vis-a-vis consensus.
Chart of the month: July is a good month to bet on a soft inflation outcome
We see a strong risk/reward case on the low side of consensus in July. The trillion-dollar question is whether markets will celebrate it or hate it? We are honestly in doubt at this point.
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