Scotiabank: Nothing in the CPI Indicates a Cut in the FED Rate

A cut in the Federal Reserve's rates is now almost completely discounted after Tuesday's inflation data, but Scotiabank (TSX:BNS) Economics warns that the latest figures show that core inflation remains too high for the Fed to loosen its monetary policy in September.

"Core CPI was warm and the breadth of price increases has broadened," said Scotiabank in a note on Tuesday. "Core services drove much of the heat," they added, following the latest inflation data released on Tuesday.

The Consumer Price Index rose by 0.2% last month, slowing down from 0.2% in June. The slowdown in consumer prices in July pushed the year-on-year CPI increase down to 2.7% from 2.8% in June.

But a closer look at the July CPI data shows that the pulse of inflation accelerated to its highest rate since January, with core consumer prices rising by 0.3% in the month, said Scotiabank. Although there will be more inflation data before the September meeting, "nothing here indicates a cut," they added.

Core service prices, which exclude housing and energy, increased by 0.48%, the strongest monthly pace since the beginning of the year. This translates to an annualized rate of 5.9% for services, surpassing the cooler inflation of core goods, according to Scotiabank.

But it's not just core services that are heating up. Price increases broadened across all categories, suggesting persistent momentum. Rents continued to rise, furniture prices skyrocketed, and recreation, prescription drugs, and hospital services experienced robust gains. While food and energy prices offered pockets of relief, with groceries falling and gasoline dropping, most measures pointed to persistent pressure.