US CPI expected to rise modestly in July before an August dip

The Bureau of Labor Statistics' (BLS) survey of consumer goods and services costs in July will provide the first of two important updates on retail inflation heading into the Federal Open Market Committee's (FOMC) September 16-17 meeting. Capped by projected slowdowns in retail energy costs, the Consumer Price Index (CPI) likely climbed by 0.2% last month - the smallest increase since April. An ongoing tug of war between higher non-energy services costs and softer commodities quotes, meanwhile, probably left the core CPI 0.2% higher, after a similar increase in June.

The gap between the year-to-year growth rates of the headline and core CPIs is expected to remain wide during the reference period. Overall consumer prices likely moved 0.2% above the level prevailing in July 2014, while the 12-month advance of the ex-food-and-energy gauge held steady at 1.8%. Looking ahead, recent declines in gasoline pump prices likely will be a drag on headline inflation in the BLS' August report, while summer reversals of earlier hikes in airline passenger fares cap the advance of the core subindex.

"Monetary policymakers are expected to view upcoming weak headline consumer inflation readings as the products of renewed swoons in petroleum-based energy costs, however. As a result, we continue to expect the liftoff in administered rates to occur at the upcoming FOMC meeting", says Societe Generale.