CICC: U.S. Inflation Enters "Gear Shift Period"

According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that the U.S. July CPI adjusted month-on-month increased by 0.1%, year-on-year by 3.4%, and core inflation increased month-on-month by 0.2%, year-on-year by 2.5%, all in line with market expectations. Energy prices continued to decline, but since August, international oil prices have risen again, increasing uncertainty about future energy prices. In terms of core inflation, goods are relatively strong while services are relatively weak, especially the prices of information technology products such as computers and software continue to rise, reflecting that the supply-demand mismatch brought about by the expansion of AI capital expenditure is gradually being transmitted to the consumer end. CICC believes that U.S. inflation may have entered a new stage, with its driving force gradually shifting from supply shocks such as tariffs and oil prices to demand expansion brought about by AI investment, which may extend the duration of inflation.

CICC's main points are as follows:

Total CPI inflation increased month-on-month by 0.1%, and energy prices continued the decline trend from last month. In July, energy prices adjusted month-on-month decreased by 1.5%, with gasoline and fuel prices falling by 2.9% and 1.7% respectively, providing a buffer for easing inflationary pressures. Although international oil prices overall rebounded in July due to the situation in the Strait of Hormuz, on average, they remained lower than in June, thus not increasing inflationary pressure month-on-month. However, entering August, international oil prices showed a trend of fluctuating upward, and if this trend continues or oil prices remain unchanged, gasoline and fuel prices will achieve a month-on-month increase. Food prices in July were generally mild, increasing month-on-month by 0.1% and year-on-year by 3.0%, with household food prices slightly decreasing by 0.1% month-on-month and dining out prices increasing by 0.3%.

Core inflation increased month-on-month by 0.2%, with a structure showing strong goods and weak services. Core goods prices increased month-on-month by 0.2%, the highest value this year. Among them, new car prices increased by 0.1% month-on-month, and used cars and trucks increased by 0.4%, reflecting that as oil prices fell, previously suppressed demand for purchasing and using vehicles is recovering. Under the AI boom, prices of information technology goods increased month-on-month by 1.4%, with prices of computers, peripherals, and smart home assistants rising by 3.5%, the highest increase since 2021; prices of computer software and accessories increased month-on-month by 0.5% and year-on-year by 21.2%, the highest increase in history. This indicates that strong AI capital expenditure is causing a supply-demand mismatch, which continues to exert upward pressure on consumer goods prices.

In contrast, rental prices increased month-on-month by 0.1%, remaining flat with last month, with hotel accommodation prices in lodging decreasing by 3.3%, which was a major drag. Non-rent core service inflation increased month-on-month by 0.2%, overall mild. Medical services (0.6%), education and communication services (0.5%) prices slightly rebounded month-on-month, and air ticket prices increased by 2.2%, but items such as motor vehicle insurance (-0.3%) weakened, limiting the upward movement of service inflation.

Overall, CICC believes that U.S. inflation may have entered a new stage, with its driving force gradually shifting from the supply side to the demand side.

Over the past year, U.S. inflation has mainly been affected by two types of supply shocks: one is the increase in import costs due to tariffs, and the other is the rise in oil prices pushing up energy and transportation costs. Among them, the tariff shock is mainly concentrated in 2025, and as the base effect gradually dissipates, its marginal impact on inflation is weakening The oil price shock began in March of this year. Although there has been some recent easing, geopolitical risks have not been completely eliminated. Since August, international oil prices have rebounded again, indicating that energy prices may still disrupt inflation.

At the same time, a new source of inflation is gradually emerging—the demand shock brought about by AI capital expenditures. Since 2025, American technology companies have been continuously expanding their AI investments, leading to rapid growth in demand for hardware such as chips, storage, high-end servers, and network equipment, which has caused significant price increases for these products and gradually transmitted to the prices of electronic consumer goods and computer software products. Unlike external supply shocks such as tariffs and oil prices, this type of inflation essentially stems from the expansion of investment demand. As long as AI capital expenditures remain high and the supply-demand imbalance does not ease, the price pressure may persist.

For the Federal Reserve, this inflation data has somewhat relieved the pressure for short-term interest rate hikes. Some officials who were previously open to rate hikes (such as Waller) may choose to continue observing. However, the Federal Reserve under Waller has weakened its forward guidance, which means that if strong employment or inflation data emerges in the future, it could quickly reignite market expectations for interest rate hikes. From a longer-term perspective, if the main source of inflation shifts from supply shocks to demand expansion, the duration of inflation may also correspondingly extend. Compared to supply-driven inflation, demand-pull inflation requires more attention from policymakers