CITIC Securities: U.S. CPI is lower than expected across the board, weakening expectations for interest rate hikes

CITIC Securities: U.S. CPI is lower than expected across the board, weakening expectations for interest rate hikes.

A CITIC Securities research report pointed out that the U.S. CPI in June was overall lower than expected, retail oil prices fell, core services showed zero month-on-month growth, and the secondary inflation effect was weak. We believe that US inflation is not very sticky, and the overall CPI has been confirmed to have exceeded this peak year-on-year.

It will generally show a moderate downward trend in the third quarter and bottom out in September. Thereafter, it will rise to the second highest point at the end of the year and rapidly decline in March next year.

We still expect the Federal Reserve to remain on hold throughout this year, and there is room for further downward revisions in interest rate hike expectations for derivatives pricing. U.S. bonds are currently not suitable for allocation opportunities, short-term bonds are better than long-term bonds, the U.S.

dollar index is difficult to continue to rise, but there is support, and the main technology line of U.S. stocks is still attractive. Overseas Macro | U.S. CPI: lower than expected across the board, weakening expectations for interest rate hikes (June 2026) The U.S.

CPI in June was overall lower than expected, retail oil prices fell, core services showed zero month-on-month growth, and the secondary inflation effect was weak. We believe that US inflation is not very sticky, and the overall CPI has been confirmed to have exceeded this peak year-on-year.

It will generally show a moderate downward trend in the third quarter and bottom out in September. Thereafter, it will rise to the second highest point at the end of the year and rapidly decline in March next year.

We still expect the Federal Reserve to remain on hold throughout this year, and there is room for further downward revisions in interest rate hike expectations for derivatives pricing. U.S. bonds are currently not suitable for allocation opportunities, short-term bonds are better than long-term bonds, the U.S.

dollar index is difficult to continue to rise, but there is support, and the main technology line of U.S. stocks is still attractive. The U.S.

CPI in June was lower than expected across the board, with an overall month-on-month decrease of 0.4% (expected to decrease by 0.1%), core month-on-month growth of zero (expected to increase by 0.2%), an overall year-on-year increase of 3.5% (expected to increase by 3.8%, the previous value increased by 4.2%), and a core increase of 2.6% year-on-year (expected to increase by 2.8%, the previous value increased by 2.9%).

▍The overall cooling of inflation brings surprises to the jittery market. This CPI report relieved the market after Waller's hawkish statement. The overall month-on-month decline was the largest since April 2020, driven by the fall in oil prices.

The zero month-on-month growth in core services was the main reason why this CPI was lower than consensus expectations. The residential item only increased by 0.1% month-on-month, which was the lowest increase since January 2021. The core service items other than residential (ex-shelter) fell by 0.09% month-on-month.

This was mainly due to the month-on-month decrease of education and communication services by 0.8%, reversing the 0.9% increase in the previous month. We believe that there is no need to worry about the risk of compensatory price increases in this sub-item next month.

The information presented in the entire CPI report is quite consistent, that is, inflation has cooled across the board and the secondary inflation effect is weak. Seasonally adjusted real hourly earnings in the private non-agricultural sector returned to positive growth year-on-year, rising 0.1%.

We expect the year-on-year growth rate of actual consumption by U.S. residents to slow slightly in the second half of the year. ▍We believe that U.S. inflation is not very sticky, and overall year-on-year inflation has been confirmed to have exceeded the current peak.

Some opinions mentioned that the non-cyclical core PCE inflation rate (Acyclical Core PCE Inflation) released by the San Francisco Fed has continued to rise in the past two years and has risen to 3.6% in May 2026, and regarded this as an argument for the strong stickiness of inflation.

However, our calculations show that about 1.1ppts of the approximately 1.3ppts increase in this indicator over the past year was contributed by air tickets, jewelry, information processing equipment and financial services. The increase in these items is mainly due to special factors such as rising oil and gold prices and flaws in statistical methods.

We do not recognize its significance in indicating the stickiness of inflation, but as always believe that the risk of secondary inflation in the United States is small.

Although the situation in the Middle East is still unresolved and the war premium in oil prices is still there, we believe that the United States and Iran should have gradually become familiar with each other's intentions and bottom line after many trials and contacts.

There is a tacit understanding between the two sides on the intensity of the conflict, so the oil price center should not rise sharply again. We refer to the current pricing calculation of the Brent oil futures curve. The overall U.S. CPI has been confirmed to have exceeded the current peak year-on-year (4.2% in May).

It will generally show a moderate downward trend in the third quarter and bottom out in September. After that, it will pass the second high at the end of the year and rapidly decline in March next year.

▍We still expect the Federal Reserve to remain on hold throughout the year, and there is still room for downward revisions in interest rate hike expectations for derivatives pricing.

Before the release of this inflation data, the derivatives market priced the path for the Federal Reserve to raise interest rates by 25bps each in September and December this year. After the release of the data, the expected time for the second interest rate hike was postponed to March next year.

Based on our forecast of the inflation outlook, we believe that there is room for further downward revisions to the interest rate hike expectations currently priced in by the market, and maintain the forecast that the Federal Reserve will remain on hold throughout the year. U.S.

bonds are currently more suitable for trading rather than allocation opportunities. Short-term bonds are better than long-term bonds. The U.S. dollar index is difficult to continue rising but there is support. The main technology line of U.S. stocks is still attractive for allocation.

The evolution of the situation in Iran or the impact of other events exceeds expectations; overseas economic and inflation performance exceeds or falls below expectations; Warsh's actions exceed expectations; global market liquidity or sentiment changes exceed expectations. (

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