Morgan Stanley Releases Inflation Data Forecasts… and Implications for the Fed by Investing.com

Investing.com – The US consumer price index was released on Wednesday, the first data to come after a sharp decline in the US labor market and the unemployment rate rising to 4.3%.

Morgan Stanley and Nomura inflation forecasts

The headline CPI is expected to show a small increase in July but will remain generally weak, reflecting the continued downward trend.

Both Nomura and Morgan Stanley expect the pace of core inflation to slow, with commodity prices continuing to decline due to factors such as lower car prices and extended retail discounts.

This is consistent with the Investing website’s expectations for the headline CPI excluding food and energy at the monthly level.

“Core inflation continues to slow, and this slowdown is likely to increase as a result of the volatility seen in July.

While we expect housing costs to recover slightly, the general trend towards inflation is slowing.

Morgan Stanley’s core CPI is expected to rise slightly in July, driven primarily by higher energy prices. However, this is not expected to change the broader deflationary picture.

“We expect more strength in the services sector, largely driven by recovery in volatile sectors such as hotels and airline bookings.

Key factors

• Merchandise: Continued weakness due to lower car prices and extended retail discounts.

• Housing: A slight rebound in rents and OER, but overall momentum remains.

• Energy: Higher gasoline prices increase core CPI.

• Car Insurance: The downward trend is expected to continue gradually.

Implications for monetary policy:

Both Nomura and Morgan Stanley expect to continue to focus on … In addition, the ongoing deflationary trend is likely to support interest rate cuts later in the year at the November meeting .

Conclusion:

Although July’s CPI data may show a slight increase, the underlying trend remains downward. Key components such as housing and goods continue to show weakness. As the Fed guides its policy stance, the path of core PCE inflation will be closely watched.