July consumer prices rose 0.2% on both the headline and core, in line with consensus, but those were weak increases: the unrounded rises were 0.161% and 0.155%, respectively. While this report raises year-on-year headline CPI inflation to 2.0% and core to 1.7%, the details suggest a still soft inflation outlook. Thus, this report arguably is neutral for the Fed: not weak enough to worry about further disinflation, but not strong enough to rush tapering. We expect the FOMC to remain data dependent and make a “game day” decision on tapering; we still see December as the most likely time to taper but it is a close call at any of the next three FOMC meetings (Sep 18, Oct 30, Dec 18).
Read the full report here.