Deutsche Bank-US Economic Perspectives Trend Inflation remains toppy on t...-117706247

T2se3r0Ot6kwoPaT2se3r0Ot6kwoPaDistributed on: 09/09/2025 21:20:22 GMTDistributed on: 09/09/2025 21:20:22 GMTDeutsche Bank Research Deutsche Bank Securities Inc. IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS. Economics US Economic Perspectives Date 9 September 2025 Trend Inflation remains toppy on tariff effects • We update our suite of trend inflation models to reflect data through July. These models continue to indicate that trend inflation remains sticky well above the Fed’s 2% target. The monthly mean and median estimates from the models held firm at 3.0% and 2.7%, respectively – consistent with very little progress over the past year. • Along with our recent analysis of the impact of tariffs on inflation, which suggests there is still scope for greater passthrough over the coming months (see How much tariff inflation has passed through so far? and Not just tariff inflation), our findings suggest inflation is likely to remain sticky at elevated levels for some time. As such, the case for cuts is likely to rely on labor market weakness. • Despite sturdy underlying inflation, recent disappointing labor data likely sealed the deal for a September cut (see Powell's speech at Jackson supports September action). Consistent with our inflation analysis, our baseline view remains for a quarterly pace of cuts spanning between September and March of next year. However, downside risks to the labor market suggest greater prospects for consecutive cuts at meetings this year. Figure 1: Measures of broad-based inflation stayed at levels observed a year ago Source: FRB Dallas, FRB Cleveland, FRB New York, BEA, Haver Analytics, Deutsche Bank Trend Inflation Update Amy Yang Economist +1-212-250-9959 Matthew Luzzetti, Ph.D. Chief US Economist +1-212-250-6161 Brett Ryan Senior US Economist +1-212-250-6294 Justin Weidner Economist +1-212-469-1679 9 September 2025 US Economic Perspectives Deutsche Bank Securities Inc. Page 2 Core PCE inflation remained strong in July, with the monthly rate ticking up to 27bps and the annual rate rising 11bps to 2.88%. Durable goods prices saw a partial reversal of the previous month's rapid increase, falling by 11 bps. This disinflation was particularly evident in tariff-sensitive categories, such as furnishings and equipment (+0.12% month-over-month) and recreational goods (-0.92%). Service sector categories contributed 24bps to monthly core inflation, roughly consistent with its contribution in the pre-pandemic period. Within services, inflationary pressures stemmed primarily from housing and utilities (+0.23% month-over-month), healthcare (+0.20%) and financial services (+1.21%), the latter driven by the summer equity market rally. While monthly rental inflation has stayed within its pre-pandemic range of 20-30 bps since April, super-core inflation (