United States: Core inflation stays contained as goods soften – TD Securities

TD Securities economists Oscar Munoz, Eli Nir, Gennadiy Goldberg and Molly Brooks expect August Core CPI to rise 0.19% m/m, with services driving gains and core goods offsetting. They project Core CPI at 2.3% y/y and Headline CPI steady at 3.4% y/y. Risks are seen skewed higher due to assumed tariff-sensitive goods declines, while core inflation is expected to ease through Q3 before re-accelerating in Q4.

Core inflation supported by services

"We expect this week's CPI data to report that underlying inflation stayed under control in August, with the core expected to rise 0.19% m/m. The services segment should be the main driver of inflation, while core goods prices likely acted as a drag, posting a modest m/m drop."

"We project that core CPI rose 2.3% on a y/y basis, down 10 bps vs July, while headline inflation likely stayed unchanged at 3.4% y/y. We see the risks to our forecasts as skewed to the upside given that we're assuming a number of large price declines in tariff-exposed goods categories."

"We look for goods prices to resume declines in August after registering a 0.20% increase in the last report. The core goods ex-vehicles segment (tariff-related) likely walked back its firm July gain with a 0.15% m/m decline, with drops in household goods and apparel acting as key drivers. Strength in new vehicle prices likely contributed to inflation for a second consecutive month."

"The services segment is expected to gather more steam in August, printing a 0.26% m/m increase, owing to firmer shelter inflation along with gains in vehicle maintenance, hospital, and recreation services. We also look for airfares to climb 3.2% m/m, up a full percentage point from July."

"We expect the core segment to continue to evolve positively through October after cresting in May at 2.9% y/y. Likewise for headline inflation, which likely saw its peak for the year at 4.2% in May, but its evolution will remain entirely dependent on the final resolution of the Middle East conflict. We expect both series to resume y/ y momentum in Q4."