Forecasters predict that the US CPI report to be released at 20:30 tonight is expected to increase the possibility of a Fed interest rate cut in September, as potential inflation is expected to record the lowest MoM since last summer.

The median estimate of foreign media surveys expects that core CPI inflation, which excludes food and energy, will only rise by 0.2% for the second consecutive month in June. The overall CPI is expected to have a smaller increase of 0.1% MoM, partly due to the drop in gasoline prices.

This result will help to strengthen the market's expectation that the Fed will begin to cut rates at its September policy meeting, marking the first step in ending the most aggressive tightening action since the early 1980s.

Foreign economists Anna Wong, Chris Collins, and Stuart Paul stated that borrowing from Fed Chairman Powell's description of recent inflation data, the CPI report for June is expected to be 'very good', laying the foundation for the Fed to cut interest rates in September.

The following are the key sub-items worth noting in this report:

Less noise expected from New York rents.

Rental costs are the biggest obstacle for the Fed to reduce inflation to its 2% target. Fortunately, rents in June may finally start to slow down.

Housing costs have kept the overall CPI monthly rate at a high level in 2024. The weight of owner equivalent rent (OER) in the CPI is 26.6%. So far this year, it has increased by an average of 0.41% per month, compared to an average of only 0.27% per month in 2019.

If it weren't for the New York metropolitan area's OER growing 1.8% in May, the largest increase in 30 years, the slowdown in rents may have already appeared in May's data. Omair Sharif, President of Inflation Insights, said that since New York is the country's largest metropolitan area, its one sub-item alone made the national OER data in May about 8 basis points higher.

Steve Reed, the economist at the US Bureau of Labor Statistics responsible for researching CPI data, attributed last month's huge increase to issues encountered when collecting quotes. He also pointed out that the data in June will use different unit samples, which rotate every six months.

Reed said, 'The small number of quotes we collect in certain areas is ultimately magnified because there are quite a few quotes that are not collected properly.'

'Essentially indicating the presence of noise.'

Cyberattacks make it difficult to judge car prices.

After core commodity prices rose 16.2% from February 2020 to May 2023, they fell in 11 of the past 12 months. Many forecasters expect this part of the price increase to drop slightly in June, with used cars being one of the largest items in the core commodity basket.

Economists use wholesale prices of used cars as a leading indicator, and most such prices have fallen in June. However, the cyber attacks affecting auto dealers nationwide have increased the uncertainty of CPI data, and any large changes may be reversed in July. In June, the most commonly used car dealer management software in the United States and Canada was attacked, causing more than 150,000 dealerships to be unable to sell cars for several days.

Citigroup economists Veronica Clark and Andrew Hollenhorst stated in a report on July 8th:

'If this cyber attack leads to sales shifting from new car dealers to second-hand cars as a substitute, although wholesale prices have fallen, second-hand car prices may remain temporarily upward pressure.'

'On the other hand, car prices (new and used) usually rise in June, but negative seasonal factors offset this rise,' they said. 'If this cyber attack causes dealers to be unable to update prices (rather than raising prices based on seasonal patterns), this may cause seasonally adjusted prices to face downside risk.'

Car insurance prices are feared to rise again.

In May, core service prices excluding food, energy, and rent recorded their first decline since 2021, partly due to the decline in auto vehicle insurance costs. Auto insurance is one of the most critical components of the CPI this year, and many forecasters expect it to rise again in June.

Morgan Stanley economists, led by Diego Anzoategui, said in a report on July 5: "We believe that the trend derived from the last report is incorrect." "Although we expect inflation to slow down in the future as insurance company profits normalize, we have not seen a significant slowdown in the company's premium filings. The company is still asking regulatory institutions to allow it to significantly increase premiums."

Edited by Jeffrey