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BNY flags elevated US supercore inflation but favors a July Fed hold

BNY notes supercore has stayed nearly a percentage point above its pre-COVID pace, and says key components like transportation services and health care are not especially sensitive to tighter policy.

Reported · Written up by our desk · Central Banks

BNY strategists John Velis and David Tam said elevated US supercore inflation, measured as core services inflation excluding shelter, is their main argument for further Fed tightening.

They also pointed to Chair Kevin Warsh’s Inflation Frameworks Task Force, saying it will reassess inflation measures such as trimmed mean inflation and how those readings should feed into policy decisions.

While acknowledging that the case for a hike is close, BNY said it still favors holding rates in July because the supercore rate is steady and has not been rising.

BNY attributed much of the supercore increase to transportation services, including airfares linked to the energy shock, and to health care costs, including insurance premium pressures, noting transportation and health care together contribute 0.7 percentage points to a 3.0% increase in supercore.

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