BofA: What we expect from the US June CPI print on Thursday

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Bank
of
America
believes
the
Fed
will
first
cut
rates
in
December
but
conceded
that
much
of
what
happens
next
could
hinge
on
Thursday’s
inflation
report.
The
market
is
pricing
in
19
bps
of
easing
through
the
Sept
FOMC
and
50.6
bps
by
year
end.

For
this
report,
BofA
forecasts
a
modest
increase
in
both
headline
and
core
CPI,
which
should
be
favorable
for
the
Fed.

Key
Points:

• 
  Headline
  CPI:
  Expected
  to
  rise
  by
  0.1%
  month-on-month
  (0.11%
  unrounded)
  due
  to
  another
  drop
  in
  energy
  prices,
  leading
  to
  a
  year-on-year
  rate
  of
  3.2%
  and
  an
  NSA
  index
  of
  314.770.
• 
  Core
  CPI:
  Predicted
  to
  increase
  by
  0.2%
  month-on-month
  (0.24%
  unrounded).
  Although
  slightly
  higher
  than
  May,
  it
  would
  still
  be
  a
  positive
  outcome
  for
  the
  Fed.
• 
  Fed
  Rate
  Cuts:
  Should
  the
  CPI
  report
  align
  with
  these
  expectations,
  BofA
  maintains
  their
  forecast
  for
  the
  Fed
  to
  begin
  its
  rate-cutting
  cycle
  in
  December.
  However,
  a
  consistent
  0.2%
  month-on-month
  increase
  in
  Core
  CPI
  could
  tilt
  the
  risk
  towards
  an
  earlier
  cut,
  especially
  with
  signs
  of
  softening
  economic
  activity.

Conclusion:

BofA
expects
the
June
CPI
report
to
show
modest
increases
in
both
headline
and
core
CPI,
reinforcing
the
positive
trends
from
May.
This
should
support
the
Fed’s
current
policy
trajectory,
with
potential
for
rate
cuts
starting
in
December,
unless
continued
low
Core
CPI
prints
suggest
an
earlier
intervention.

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