Guotai Haitong Securities Co., Ltd. has released a research report analyzing July's US inflation data, which aligned with market expectations. The report highlights a structural pattern of firmer goods prices alongside stable services, partially easing concerns about a potential Federal Reserve rate hike in September.

While US inflation continues on a moderate trajectory, the report cautions about potential disruptions from oil prices and resilient demand that could slow the disinflation process. If August inflation data does not exceed expectations and the US job market maintains low employment growth, the Fed's wait-and-see window could be extended, with a high probability of keeping rates unchanged in September.

July Inflation: Moderate Deceleration as Expected

In July, the US CPI fell to 3.4% year-on-year, while the monthly rate rose to 0.1%. Core CPI remained at 2.5% year-on-year and increased 0.2% month-on-month, all in line with market expectations and maintaining a moderate pace. The energy component continued to show negative month-on-month growth, but the decline narrowed significantly from June due to a second oil price rebound triggered by escalating US-Iran tensions.

Core Inflation: Goods Strengthen, Services Remain Stable

Most core goods categories saw a rebound in month-on-month growth. The automobile sector, a key component of core goods, experienced a notable rebound, particularly in used car prices. Beyond autos, categories like furniture, clothing, and education-communication goods also increased month-on-month. Excluding used cars, core goods inflation rose to about 0.2% month-on-month, reversing the relatively weak trend seen since the second quarter.

In contrast, core services inflation remained broadly moderate. The housing component posted a slight month-on-month increase, staying within a moderate growth range. Excluding housing, core services inflation rose 0.2 percentage points to 0.2% month-on-month, showing no signs of overheating. July's airfare increase drove a rebound in transportation services, while medical services and education-communication services also saw modest recoveries, but remained within manageable levels.

Fed's Wait-and-See Window Could Extend

US inflation remains moderate, but future upside risks warrant attention. First, if oil prices spike again due to US-Iran tensions, it could disrupt the pace of disinflation. Second, with resilient US demand and ongoing expansion in AI capital expenditures, there is a risk of demand-side pressures lifting core inflation.

In the near term, the in-line inflation data has temporarily alleviated concerns about a September rate hike. The next inflation report, due before the September Fed meeting, will significantly influence market sentiment and monetary policy. If August inflation data continues its moderate trend and the US job market maintains low employment growth, the Fed's wait-and-see window may extend further, with a strong possibility of keeping rates unchanged in September.

Risk Factors

Prolonged tensions in Iran could lead to a second oil price rebound, and the Fed's hawkish stance may exceed expectations.