Goldman Sees July Core CPI at 0.19%, Cooling Fed Hike Bets

Goldman Sachs expects July core CPI to rise 0.19 percent month over month, below the 0.2 percent consensus.

Goldman Sachs expects July core inflation to print below consensus, a reading that would cool Federal Reserve rate-hike bets and steepen the Treasury curve into Wednesday's release. The bank's forecast calls for core CPI to rise 0.19 percent month over month, or 2.47 percent year over year, versus consensus of 0.2 percent and 2.5 percent, while headline CPI is seen up 0.05 percent monthly and 3.35 percent annually, below the 0.1 percent and 3.4 percent expected.

"Soft data would cool Fed rate-hike expectations, potentially triggering a bull steepening of the Treasury yield curve and a Goldilocks backdrop across asset classes," Duncan Toms, multi-asset strategist at HSBC, said.

The release lands as US 10-year yields climb six basis points to 4.705 percent and West Texas Intermediate crude surges 6.7 percent to $82.29 a barrel after Iran ruled out talks with President Donald Trump until his term ends in 2029. A below-consensus print would strengthen the case for the Fed to hold rates at 3.50 percent to 3.75 percent through year-end, after July payrolls fell 23,000 and May-June figures were revised down by 100,000. Prime Terminal data shows a 65 percent chance the central bank holds in September and a 35 percent chance of a 26-basis-point hike.

Autos, Shelter and Travel Split the Core Reading

Goldman's breakdown shows a mixed picture across the three biggest components. Used-car prices are seen rising 0.5 percent on auction signals, new-car prices up 0.1 percent on dealer incentives, and auto insurance falling 0.5 percent as premiums ease. Shelter, roughly a third of core CPI, is expected to stay benign, with owners' equivalent rent up 0.23 percent and primary rent up 0.16 percent, reflecting a continued slowdown in housing inflation.

Travel services are similarly uneven. Airfares are forecast to climb 2.0 percent as July's oil rebound lifts jet-fuel costs, while hotel prices fall 1.0 percent as the World Cup-driven demand boost fades. Bank of America economist Stephen Juneau expects a "modest" 0.1 percent headline gain and 0.2 percent core increase, while Deutsche Bank sees 0.15 percent and 0.26 percent respectively. Vanguard economist Adam Schickling forecasts 0.1 percent headline and 3.3 percent annually, warning that "supercore" services inflation, up 3.2 percent over the year, remains sticky as wages grow 3.5 percent.

Core PCE Methodology Shift Adds Noise

Goldman flags that July core PCE, the Fed's preferred gauge, is expected to rise 0.26 percent month over month, well above core CPI, because the portfolio-management category will jump on a lagged reflection of second-quarter equity gains. A methodology revision at the end of September will initially estimate that component using wage data less correlated with stock prices, potentially revising July core PCE down to 0.21 percent before a December restatement lifts it again.

Looking ahead, Goldman projects core CPI to hold near 0.2 percent monthly as shelter cools, tariff-related price contributions narrow, and jet-fuel pass-through fades. The main upside risk is oil: if supply disruptions through the Strait of Hormuz persist longer than expected, the inflation path could deviate sharply from the baseline. JPMorgan's trading desk sees the S&P 500 swinging between a 2.5 percent decline and a 2 percent gain depending on where core CPI lands, with a 40 percent probability of a 0.2 to 0.25 percent reading that would lift equities 0.25 to 0.75 percent.

This article is for informational purposes only and does not constitute investment advice.