UBS Economics-US Economic Perspectives _US Inflation Monthly Gradually ri...-117366631

ab20 August 2025Global ResearchUS Economic PerspectivesUS Inflation Monthly: Gradually risingMonthly core price projections have ticked up
As expected in last month's US Inflation Monthly the July core CPI increase was the largest seasonally-adjusted monthly increase since January and larger than any increase in the final 9 months of last year. We expect core CPI increases in the next few months will be roughly similar to the 32bp July pace , which is a bit lower than we expected a month ago. We do not expect to see an increase close to 23bp June pace until the spring of next year.
Tariffs pass-through is occurring a bit more slowly than we had anticipated, but tariffs are clearly pushing up inflation. Core CPI inflation is up 38bp from its post-pandemic low three months ago and headline CPI inflation is up 39bp. Inflation should continue to rise up from here
We expect inflation will peak in the second quarter of the next year with core CPI inflation just shy of 4% if the tariffs currently implemented remain in place.
The additional tariff levels that were implemented early this month have had modest impacts on our forecast as wehave also adjusted our projection to account for a lower share of items from Canada and Mexico paying tariffs.
There is considerable uncertainty surrounding this projection, and in particular with the timing of tariff pass-through. The forecast will be revised as new information and new policies warrant. A detailed forecast spreadsheet is available on our website.Core PCE inflation above consensus: 3.4% in 2025, 3.1% in 2026, 2.4% in 2027
We expect the biggest tariff effects will hit this year driving core PCE inflation from the current 2.8% through June up to 2.9% in July and continuing up to around 3.4% in the fourth quarter of this year. Given current tariffs, inflation will likely start falling in the second half of next year. but remain quite elevated through late 2026
Our inflation forecast is little changed this month. In contrast, consensus forecasts for inflation this year have moved down slightly. As a result, our projection is on the high side of consensus this year, and we remain solidly above current measures of consensus inflation projections in 2026 and 2027 as we continue to expect notable second round effects of the tariffs. However, given the different timing of various consensus measures, it is difficult to know what tariff assumptions are embedded in each measure of consensus. Our forecast is in line with CPI swaps fixings in coming months and then just slightly above them after February of next year..EconomicsAmericasAlan DetmeisterEconomistalan.detmeister@ubs.com+1-212-713 1222Jonathan PingleEconomistjonathan.pingle@ubs.com+1-212-713 2225Sonia MeskinEconomistsonia.meskin@ubs.com+1-212-713 1424Amanda WilcoxEconomistamanda.wilcox@ubs.com+1-212-713-2000Pierre LafourcadeEconomistpierre.lafourcade@ubs.com+1-212-713 4543This report has been prepared by UBS BB Corretora de Câmbio, Títulos e Valores