USD-flation Watch: Still not softening as much as Europe
The inflation release on Thursday is the most important release of the week and we find consensus to be decently aligned with the underlying trends in US inflation.
Core inflation is trending around 0.3% MoM in the US and we see no reason for a sharp change in that trend given our price observations and models, and we only see a minor hawkish tilt in our models compared to consensus, but expect the MoM core inflation to print accurately above 0.3%. The consensus change for the MoM core inflation is very close to 0.25% given the expectation of 3.8% YoY inflation. Only a very minor surprise is needed to bring the YoY number to 3.9%, which we find likely.
Chart 1: US CPI decomposed
Consensus looks decently fair for USD inflation released on Thursday, but the risk is tilted marginally in the hawkish direction especially due to transportation services. Core inflation is likely to print at 3.9% YoY.