Goldman Sachs Expects July Core CPI Below Consensus; HSBC Bets on Another Soft Reading
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Goldman Sachs forecasts July U.S. core CPI at 0.19% m/m, a tick below the 0.2% consensus; HSBC likewise bets on a soft reading — both say a downside surprise would strengthen the case for a Fed rate cut.
How far below consensus is the call?
Goldman forecasts July core CPI at 0.19% m/m, versus the 0.2% consensus; the year-on-year reading comes to 2.47%, below the expected 2.5%.
For headline CPI, falling retail gasoline prices drag the energy component down 2.0% m/m, pulling headline CPI to just 0.05% m/m — well under the 0.1% consensus.
This means → if Goldman's numbers land, disinflation is running faster than the market has priced, giving the Fed a clearer runway to cut.
What are the three key sub-components doing?
Autos are split: used-car prices are seen up 0.5%, supported by auction signals; new cars are roughly flat at +0.1% on dealer incentives; auto insurance is forecast to drop 0.5%, tracking an online-data decline in premiums.
Shelter keeps cooling: owners' equivalent rent — OER, the gauge for homeowner housing costs — is seen at +0.23% m/m, with primary rent at +0.16%. In plain terms = shelter accounts for roughly one-third of core CPI, so when it cools, the headline number follows.
Travel is mixed: airfares are forecast up 2.0% as July jet-fuel costs rebounded; hotels are seen down 1.0% as the World Cup lodging boost fades.
What does HSBC add to the picture?
HSBC multi-asset strategist Duncan Toms notes that June inflation already delivered a "dovish surprise"; his nowcast model points to another soft print in July.
He argues a soft reading would act as a catalyst — a single event that triggers the market to reprice — pushing rate-hike expectations lower.
This means → the U.S. Treasury yield curve could bull-steepen. Put simply = short-end yields fall faster than the long end, as the market front-runs a rate cut.
Why would core PCE come in higher than core CPI?
Goldman notes that despite soft core CPI, the corresponding July core PCE — the Fed's preferred inflation gauge — is estimated at 0.26% m/m, notably above the CPI print.
The driver is the portfolio-management component. In plain terms = fees from fund management and similar financial services; it lags and reflects Q2's equity-market gains.
A methodology revision is due in late September: the initial update will use wage data less correlated with stock prices, potentially lowering July core PCE to 0.21%; once Q3 quarterly-services survey data arrive in December, the reading may be revised back up. This reflects a stretch of noise baked into the data by the methodology switch itself — worth flagging when reading the prints.
What is the path ahead, and where is the risk?
Goldman's baseline: core CPI holds at roughly 0.2% per month, supported by continued shelter cooling, fading tariff-related price pass-through, and easing jet-fuel pressure on airfares.
The upside risk sits in the oil market: if supply disruptions last longer than expected and push crude higher, the inflation path could overshoot baseline materially. This means → the July airfare component already shows how directly oil-price swings transmit into CPI.
Wednesday's print will directly shape how the market prices the Fed's September meeting.
Content is for reference only, not financial advice.