Bank of America (BofA) provides its expectations for the U.S. Consumer Price Index (CPI) for the month of July, forecasting a softer report that may indicate a moderation in inflation trends.

Headline CPI: BofA predicts that the headline CPI will likely increase by 0.2% month-over-month (m/m), unrounded to 0.20%. This would lead to a year-over-year (y/y) rate increasing by two-tenths to 3.2%. The NSA index is also expected to print at 305.722, up from 305.109 in June.

Noncore Components: In the noncore areas, BofA expects food and energy prices to increase by 0.2% m/m and 0.9% m/m respectively. Factors include warmer weather, stronger demand, and reduced supply, especially in gasoline and utility prices. Food away from home inflation, driven by high labor cost inflation, is anticipated to be the primary driver of overall food inflation.

Core Inflation: A more modest 0.1% m/m increase is forecasted for core inflation, unrounded to 0.14%, resulting in the y/y rate declining by two-tenths to 4.6%, the lowest since September 2021. The three-month annualized rate is also expected to slow to 3.0% from 4.1% in June, a significant improvement from the 6.1% annualized pace last July.

Key Points:

1. Moderation in Inflation: The report is expected to show signs of a slowing in inflation, with core inflation at its lowest since September 2021.
2. Food and Energy Prices: Increases are anticipated here, driven by various factors such as weather, demand, and supply constraints.
3. Core Inflation Slowdown: A marked improvement in the annualized pace is forecasted, signaling potential stabilization in inflationary pressures.
4. Overall Soft Report: BofA's forecast points to a less robust inflation picture for July, aligning with a broader narrative of potential cooling in the inflationary environment.

Conclusion: BofA's expectations for the July CPI report paint a picture of moderation and potential stabilization in inflation. The softer forecast, especially in core inflation, aligns with a broader view that inflationary pressures may be easing after a period of heightened concern. Market participants and policymakers will be closely watching the actual CPI print to gauge the trajectory of inflation and its potential impact on monetary policy and market dynamics.