Synopsis:

BofA highlights that the July CPI data aligns with expectations, showing positive signs of disinflation, particularly in goods prices and core services excluding shelter.

Key Points:

1. July CPI Overview:

   • Headline and core CPI inflation both rose by 0.2% month-over-month, with year-over-year increases of 2.9% and 3.2%, respectively. These figures mark an improvement from the previous month and suggest that disinflation is back on track.

2. Cooling Goods Prices:

   • Goods prices declined by 0.3% month-over-month, driven by significant drops in new and used auto prices. Used car prices fell by 2.3%, more than twice the expected decline. Even excluding used car prices, core goods prices still fell by 0.1%, indicating ongoing deflation in this category.

3. Core Services Ex-Shelter:

   • Core services prices excluding shelter rose by 0.2%, a positive development given the earlier risks of reacceleration in this category. Although still elevated on a year-over-year basis at 4.4%, the three-month annualized rate has slowed to 0.5%.

Conclusion:

BofA sees the July CPI print as encouraging for the disinflationary trend, with key improvements in goods prices and core services ex-shelter. These developments support the case for Fed rate cuts later this year.