Natixis on Upcoming US CPI - FJElite

We think inflation data from the July CPI report should look less like a turning point and more like another incremental step in an ongoing normalization process. The exceptionally soft June report was unlikely to mark the beginning of a new trend, just as one firmer reading in July would not represent a renewed inflation problem. Instead, the underlying pace of core inflation appears to be settling into a range that is increasingly consistent with progress towards the Fed’s target.

For policymakers, the July report is unlikely to materially alter the broader narrative. A core reading near our forecast would reinforce the view that inflation continues to move in the right direction, albeit gradually. The Fed is unlikely to react to any single month's data (and August’s print is due before the next Fed meeting), another report consistent with ongoing normalization would add to the cumulative evidence that underlying inflation pressures continue to ease.

In short, July looks like another report that demonstrates progress without declaring victory. Inflation continues to improve, but the remaining sources of pressure are concentrated in categories that historically adjust only slowly. That suggests the path back to 2% remains intact, even if the final steps are likely to require patience.