The BLS CPI report is out tomorrow. There will be a second report before the September Fed meeting. The reports will allow the Fed to cut rates by 0.50 Percent.
Gaming the CPI Month-Over-Month
The Bloomberg Econoday consensus is for the CPI to rise by 0.2 percent in July.
I will take the under at 0.1 percent with a decent chance for lower depending on rent and owners’ equivalent rent (OER).
OER is the price someone would pay to rent their own house if they rented instead of owning.
Estimating Year-Over-Year for July
For every 0.1 percentage point above or below 0.2 percent for July, expect a corresponding move in the year-over-year report tomorrow.
My estimate is 0.1 percent for July, thus a 2.9 percent year-over year number, down from 3.0 percent last month.
Year-Over-Year Look Ahead
- July: 2.9 percent
- August: 2.4 percent
- September: 2.1 percent
At the risk of looking silly, I suggest any surprises for those numbers to be to the downside.
Adjustments
My forecast for August and September depends on being correct for July.
For every 0.1 percentage point above or below 2.9 percent in July, adjust August and September up or down accordingly.
The year-over-year reports for August and September will be very good regardless of what happens in July.
Producer Price Index (PPI) Weaker than Expected
Earlier today I commented Producer Price Index (PPI) Weaker than Expected, the Fed Will Be Pleased
The PPI rose 0.1 percent in July vs. a 0.2 percent Bloomberg Econoday expectation. The way the PPI outperformed will please the Fed.
Transitory Pleasure
The Fed’s pleasure will be transitory as good CPI reports morph into a recession.
For discussion, please see my August 2, 2024 post The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered.
I did a follow-up post on August 9, Recession Debate: Citing the Sahm Rule, WSJ’s Greg Ip Says No Recession
Greg Ip says the conditions for recession are not in place. I disagree. And I show where and how he went wrong.