Core CPI inflation likely pauses weakening - Nomura

Analysts at Nomura explained that after a series of weak readings over the past few months, they expect core CPI inflation to accelerate to a trend-like level of 0.202% m-o-m in July, which translates into a y-o-y change of 1.8% (1.788%), up from 1.70% in the previous month.

Key Quotes:

"Although we are relatively bearish on the core inflation outlook in the medium term, we think that an expected reversal of declines in some volatile subcomponents most likely pushed up core inflation in July. 

Moreover, the current seasonal adjustment factors, which were revised back in January, point to slightly higher inflation for the month of July relative to the old set of seasonal adjustment factors. 

A 0.2% m-o-m increase in core inflation should ease disinflation concerns somewhat but there could be some enduring factors which potentially weigh on inflation in the medium term (such as rent). 

As for non-core components, we expect a moderate increase in energy prices of 0.1% m-o-m while food prices appeared to increase at 0.2% m-o-m, reflecting higher agricultural product prices and restaurant menu prices. 

Overall, our forecast for headline CPI is +0.196% m-o-m. On a non-seasonally adjusted basis, we expect CPI NSA to be 245.022."