Thread by @arjungn80

US inflation reaffirms 'transitory'. US inflation continued to rise and stood higher than expectations for a third month in a row. US inflation for the month of June stood at 5.4% y/y, much higher than market expectation of 4.9%. Core inflation also rose higher to...(1/8)

...4.5%, higher than the 4% consensus.
Why does this again reaffirm transitory for the Fed? This is mainly because the key drivers of inflation came from almost the same items seen in earlier months: used cars/trucks (45%), gasoline (45%), fuel oil (45%), utility...(2/8)

...gas service (16%) and transportation services (10%). These are almost entirely reflective of reopening of the economy and could moderate into the months ahead as the economy continues to normalise. July is a month when most of the US would be up and...(3/8)

...running, closer to normalcy and therefore into the months ahead, it is reasonable to expect inflation to moderate. Like in India, where 46% of the India's CPI weight is food; in the US 42% weight comes from housing and related. Even as the housing market is witnessing...(4/8)

...strength and rising prices, rental inflation that have large weights in the CPI are still fairly low and subdued. For eg: owners’ equivalent rent inflation stood at 0.3% m/m (23% weight) and tenants rents inflation rose 0.2% m/m (8% weight) . In short, the Fed...(5/8)

...reaction to this is unlikely to be unfavourable and there appears to be a highly likely probability that Powell and the Fed language would reiterate the 'transitory' narrative, given that the CPI break-up continues to reflect normalisation pressures...(6/8)

...and not pressures from sustainable inflation. Note commentators see 50%+ of the increase in inflation to have come from re-opening related segments. The US 10Y that has been in focus for a while has seen an increase over the last few days and currently...(7/8)

...stands at 1.40%, moving back to early July levels; but still much lower than its mid-May recent peak of 1.70%.(8/8)